How Tech Companies Can Succeed by Going Private
BlackBerry, BMC and Dell are three of the latest tech companies to go private after a series of stumbles as public companies. To succeed in the latest chapter of their business lives, these firms need to undo the damage done by going public in the first place. It's easier said than done.
Thu, September 26, 2013
CIO — This week BlackBerry joined BMC and Dell in attempting to go private as a means of restructuring for the future. At the core of this move, though, is a bigger concern that has broader meaning for the technology industry: It's increasingly clear that one of the fastest ways for a company to stagnate is to go public.
I think three things cause this: An excessive focus on quarterly results, a tendency to cobble together management teams and a sudden surge of wealth for folks not properly trained to deal with it.
Now, going private, or being a private company in the first place, isn't a bed of roses, either. Rich and powerful but inexperienced investors and invasive venture capital companies can force a company down a different path to failure, while swapping sound financial analysts for a bad funding partner can be like jumping from the frying pan into the fire.
Care must be taken with funding partners. Most professional CEOs know this, but young startup CEOs often don't — and many promising young companies are killed by those who fund them accidentally.
Let's talk about the aforementioned three reasons that going public in the first place so often kill innovation.
Obsessing Over Quarterly Results Puts Profit Ahead of Innovation
Mark Hurd's reign at Hewlett-Packard demonstrated this point all too well. Financial analysts love him because he improved bottom-line results, but Hurd got those results by excessively cutting costs, including research and development spending.
For instance, HP was working on one the best smartwatch designs I've ever seen, but Hurd killed the project in order to make his numbers. This could have been HP's iPod, but Hurd opted for the safety of happy financial analysts instead of a shot at an Apple-like future. And he got a bonus for doing this.
This is why public companies have so much trouble innovating. It isn't that they don't have great ideas. It's that the CEO has to make trade-offs between funding them and making quarterly numbers. Few CEOs will trade a big bonus for the possible chance to unveil a hit product, given the long odds of a hit product succeeding and given that bonuses aren't tied to individual products.
This is one of the things that made Steve Jobs interesting. He didn't seem to care about quarterly numbers much and focused instead on setting perceptions around those numbers while creating hit products.