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  • Saturday Business Links and Commentary

    Posted by David Foster on April 9th, 2011 (All posts by )

    The Senate has passed a bill which would implement significant changes in the U.S. patent system. Bill Waddell has some serious concerns.

    Also via Bill comes this interesting interview (video) with the head of GE’s Appliance business, which is significantly expanding its manufacturing operation in Louisville, KY. See also the discussion at Bill’s site.

    WSJ reports that the SEC is considering relaxing the limit on the maximum number of shareholders in private companies, currently set at 499. According to another article in the same publication, the SEC is also considering a rather bizarre “crowdsourcing” approch under which companies would be able to sell investments in very small dollar amounts–$100 was mentioned–using social networking sites such as Facebook. (Another related WSJ piece here)

    An alternative–perhaps complementary–approach is being proposed by David Weild, a former vice chairman of NASDAQ. Weild would like to see the creation of a new stock exchange, focused on raising capital for emerging companies and with a wider bid-ask spread to make dealing in such companies a more profitable activity for marketmakers.

    A Business Insider article assesses recent organization changes at Google as a demotion for Marissa Mayer, based partly on the following reasoning:

    Last year, Marissa Mayer was moved from being in charge of search to being in charge of local…Thing is, search is Google’s cash cow, and it’s probably the most important business in tech. So not running it anymore definitely makes her a less powerful executive.

    I’m not a Google shareholder and don’t really follow the internal gossip of the company all that closely, so I have no particular opinion on how good a job MM has or has not been doing, nor when I read the linked article did I have any real opinion on whether or not the changes represented a good or a bad thing for her. (Later information suggests probably the latter.) But the kind of thinking represented by the assertion that less revenue responsibility means a less important job can be very dangerous to a business. The bad thinking in this case being done by the author, not necessarily by Google…however, an earlier BI article also observes that core search and AdWords are still king. That’s where the money comes from today, and why the engineers in those groups are treated like kings.

    The problem with this line of thinking is that today’s revenue-dominant product is not necessarily tomorrow’s revenue-dominant product, and to the extent that power, resources, and status flow excessively to the current revenue king, tomorrow’s revenue king may never have a chance to be born and to grow up. A recent issue of Fortune offered Microsoft as an example–in a very hard-hitting article, the author argued that the grossly excessive dominance of Windows, aided and abetted by Steve Ballmer at every turn, has strangled many promising initiatives in their cradles.

    A very astute and successful CEO observed that “the secret of startups is that you can have very smart people working on very small things.” By “small,” he did not mean unimportant; he meant small in terms of existing revenue. It is possible, of course, for established companies to also put appropriate focus on new and promising initiatives, but this will not happen where the company culture overly associates “success” with “current revenue managed.”

    Clayton Christensen & Michael Raynor extensively discussed the tension between new and existing businesses in companies in their excellent book The Innovator’s Solution, which I reviewed here.

     

    4 Responses to “Saturday Business Links and Commentary”

    1. Robert Schwartz Says:

      SEC : Securities Markets :: Deck Chairs : Titanic

    2. sol vason Says:

      The rapid growth of technology and small businesses in the 1800s and 1900-1930 was partially fueled by the local stock exchanges that existed in almost every city of 100,000 or more.

      These exchanges disappeared after the SEC was created. This answered the question whether it was better to have regulation or unbridled growth and prosperity.

      Boom-bust cycles are best controlled by requiring the boomers to have licenses to boom. The regulations don’t improve the quality of the companies that are trade, nor are investors any better informed. However many regulation-related jobs have been created.

    3. Cousin Dave Says:

      In regard to the last few paragraphs: In the mid-1980s, I worked for one of the better-known minicomputer companies (not DEC, though). At the time, minicomputers were a booming business. By coincidence, I had a chance to receive a few workstation computers from a workstation startup that wanted to partner with us, and to incorporate the workstations into a networked product. In this, I got a glimpse of the future: networked workstations, with (at the time) a multi-processor minicomputer playing the role of server farm. I tried to get the marketing people interested in this, but they were having none of it; their marketing survey data told them unequivocally that what the customers wanted were more, better, faster, cheaper minicomputers. I pointed out that, by their logic, Fedex would never have been created because no one realized they needed it, but to no avail. No partnership agreement was reached.

      As we all know now, in the early ’90s the minicomputer business hit the wall. The company I used to work for (I was long gone from it by that time) was subsequently bought and sold several times, and finally dissipated within the inner workings of its last purchaser. The company never did get into the workstation or distributed-computing markets. Of course, now the personal-computer-and-server-farm paradigm rules the day. The marketing people just assumed that the market would always want what it wanted in 1985. They never came to grips with the possibility of innovation upsetting the market even when the innovation was sitting on their conference room table staring them in the face.

    4. David Foster Says:

      Cousin Dave…see how not to do market research for some humorous but sad stories.

      I do think many innovations come from customer interactions, but less from formal surveys than from direct discussions–and discussions with the right people. For example, the first fully-computerized airline reservation system, IBM’s SABRE, came out of a chance meeting between the then-CEO of American Airlines and an IBM sales rep who happened to be sitting next to him on a flight. It’s unlikely that this opportunity would have been uncovered in discussions with the data processing people at American, who probably would have been more interested in faster tape drives or some such…Also, it must have taken a very exceptional sales rep to pursue this, given that it wasn’t going to help him with his quarterly or even his annual quota achievement.