Is the Facebook IPO the Death of Innovation?

May 21, 2012

11:30 am

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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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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