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Is the Facebook IPO the Death of Innovation?

Innovation Black Hole?

Is Microsoft innovative? Not as much as they once were. Is Yahoo innovative? How about RIM, or HP? These companies are decades away from their last innovation and all but Microsoft are a few last gasps away from the once innovative corpse of Kodak.

What is it about innovative companies that mutates the once active innovation-gene into engines of stale thinking?  Could the initial public offering (IPO) have a hand in the fall?

According to research outlined in Daniel Pink’s book, Drive, the pressure of cash rewards stifle innovation for right-brained, conceptual workers. Does maintaining the stock price of a billion dollar company create sufficient pressure to narrow focus and hamper innovation?

Companies are either focused on Customer Intimacy, Operational Excellence or Innovation, and for those companies focused on innovation, the IPO is the start of their corporate slide to irrelevancy.

Instead of long-term investment, the executive team turns their focus to stock price movement based on the whims of short-term traders who are more concerned with next quarters’ revenue and profit rather than the value of long-term R&D. Upon going public, employees of the company immediately feel the pressure to deliver quarterly results at the expense of all else.

Salespeople, desperate to produce their quarterly numbers, drag sales forward with discounts on deals that could have fetched list price had they gone through the natural sales cycle, thus decreasing the value of the pipeline and intensifying the pressure. Margins drop as focus shifts from the long-view to the what-have-you-done-for me-lately view.  Mounting pressure continues to narrow focus in a downward spiral of lost creativity.

Apple is one of the few companies to drive sustainable innovation well past their IPO. Apple, however, did suffer the post-IPO doldrums, losing their innovative mojo decades ago after ousting Steve Jobs and replacing him with John Scully, who quickly turned Apple to the prototypical post-IPO firm.  Only Jobs’ return to the helm restored Apple to it’s pre-IPO innovative form.

Apple reclaimed their reputation as an innovation factory during Jobs’ second reign. Under Jobs, Apple was more Jobs, Inc. than Apple Inc.  Apple became an extension of Jobs’ ego. The company became a centralized corporation driven by a man who was not distracted nor motivated by the twists and turns of Wall Street, and, therefore, Apple did not succumb to IPO Innovation Atrophy.

With Jobs gone, it will be interesting to see if the company doesn’t go the way of  HP, or Yahoo, or Google, which is now trying to grow revenue on the backs of ho-hum, me-too products like their “Facebook Killer,” Google+.

Will Facebook’s Mark Zuckerberg duplicate the success of the personality- driven Apple, or will Facebook join the list of former bottle-rockets turned free-falling meteors? If Facebook slams to Earth, will the crater it leaves equal or exceed the craters soon to be left by Yahoo, RIM and HP?

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About the Author
glen@drivenforward.com'

Glen Hellman (@glehel), is an angel investor, serial entrepreneur, and works for venture capitalists as a turn-around specialist. He is the Chief Entrepreneureator at Driven Forward LLC, frequently muses on his blog, Forward Thinking, and works with entrepreneurs to help them figure out what to do and get them to do it.

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11 Responses to “Is the Facebook IPO the Death of Innovation?”

  1. KightlingerDodgen852@hotmail.com'

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  2. Mike

    This is an interesting topic and you give compelling arguments against IPO – which I hope the board of my company keep close to heart whenever they consider an IPO. However, the conclusion seems a bit premature, considering that you are wondering about the demise of a company based on the predicted demise of 3 others. I feel like that weakens the otherwise meaningful discussion on the lack of innovation – maybe some metrics supporting that particular conclusion would be more meaningful.

    • glen@drivenforward.com'

      glehel

      Mike- Not demise as much as a slow downward slope away from a growth company.

  3. michaelsmithprb@gmail.com'

    Michael A. Smith

    The skill set for the entrepreneur to build a successful company is very different from the skill set needed to run a large public company, and at some point, one of three things has to happen. The least likely of those three things is that the entrepreneur grows into the role as the CEO of the public company. That's difficult, because very often with technology companies, a lot of what makes the entrepreneur successful is their level of innovation, their ability to spot trends and their ability to move quickly. And when you’re in charge of a big public company, you need to be really good at crossing your t’s, dotting your i’s and making sure that you have all the people in the right places, reporting to the right people. That’s a very different skill set.

    The second thing that can happen is that the entrepreneur bumps up against the ceiling, taking the company to a given level, and then they crash and burn because they can never grow beyond that point. Either they are replaced as the CEO or the whole company crashes and burns.

    The third thing that can happen is that the entrepreneur brings in professional managers to help them develop their company to a level that they couldn't take it to themselves, because of the different skill sets the professional managers bring to the company.

    The big mistake that I see people make is they run into a situation in which they bring in the professional manager too soon, given the stage of growth that their company is in at that time. They bring in a professional who grew up in the big company environment. That person learned to build a team around them from the big company perspective and you're not a big company yet. The skill set of that professional is not a good match for what the entrepreneur’s company needs at that time.

    You would be better off if you brought in a professional with experience in a startup, a person who developed his or her skill set in a startup and helped that startup develop into a big company, and that person understands that transition. He or she has that skill set. It really is all about the different skill sets – entrepreneur and big company manager – and you have to bring the right people in to be successful.

    Michael A. Smith
    Carlile Patchen & Murphy LLP

    • glen@drivenforward.com'

      glehel

      Great points and I absolutely agree. Although I believe that with a strong core value system, strong culture, attention and success in hiring and on-boarding and a clear vision, a company can grow, remain nimble, innovative and competitive.

      Going public though puts blinders on the team, narrows focus, and creates a focus on short term optics versus long term investment.

  4. garrett-free@gmail.com'

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    • glen@drivenforward.com'

      glehel

      You're very welcome Mr. Spam-Commenter-trashy-indoor-bonsai-plant-guy! Thanks for stopping by with your bot in your pointless attempts to appear relevant!

  5. claudiaregister@animail.net'

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    I was curious if you ever considered changing the page layout of your blog?
    Its very well written; I love what youve got to say.

    But maybe you could a little more in the way of content
    so people could connect with it better. Youve got an awful lot of text for only having one or 2 images.
    Maybe you could space it out better?

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