The fire at Walthamstow, east London, resulted in enormous damage and job loss which was "due to your foolish and mischievous conduct", the Recorder of London, Sir Lawrence Verney, told the teenager, who is just over 4ft tall and bespectacled with red hair, and appeared in court wearing an anorak.
The judge went on: "I think you are sorry for what you did, but I want to make it clear that in the ordinary course the appropriate sentence would be custody for a substantial period.
"An alternative has been put before the court which I believe it ought to adopt. It is a rare opportunity which will help you not only in relation to this matter, but for the rest of your life."
The judge made a two-year supervision order after being told by the court youth worker Alan Doherty that the youngster did not have the stature or emotion to be able to cope with being locked in an institution.
"He acts like a 10- to 12-year-old and could not cope with the bullying," Mr Doherty said. "He is a small young man who would find it physically and emotionally impossible to cope. He does not have the resources."
Mr Doherty said the scheme the boy would start as part of his supervision order was expensive, but would help his social development, boost his self-esteem and give him projects and practical work.
The teenager, who cannot be named for legal reasons, had admitted arson.
The boy - dubbed The Milky Bar Kid by outsiders because of his size - had set fire to some waste material in a stairwell of a clothing company on the industrial estate, and the blaze had spread rapidly, burning down other units on the site, John Ryder, prosecuting, had told the court.
Hundreds of people were forced to flee. Some found their exit impeded, and one man broke his leg when he had to jump from the first floor.
A consultant psychiatrist who examined the boy said she did not think it was his intention to burn down property or endanger life. He had not realised what his actions would cause.
The teenager suffered a growth deficiency and had been bullied and intimidated in the past because of his height, the court was told.