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Big. Bigger. Suck.
Empire building is bad. Not just because it's an exercise in vanity, but because companies go from doing one thing well to doing many things poorly. You see this over and over again. A company like Google will master one element of service or production. It will then get ambitious and try start to expand in new areas, frequently by just buying its way in to new fields. The result is that the business that it originally excelled in starts to suffer. My God, just look at Microsoft. They do everything, and none of it well.
I was worried when Google went public. It seemed like the founders were ready to cash in. The only reason to go public was to raise additional capital for new ventures. Predictably their old ventures will suffer. Part of the reason is that they'll be pulled into the dominant market model of trying to post huge annual increases in profit. A private company can accept steady profits and plan for the long-term. A public company needs to be splashy every quarter to keep its stock price up. It's a recipe for recklessness.
I'm also very skeptical about the value of buying a company in order to get your foot in the door. The planned economies of scale rarely seem to manifest themselves, and the products if anything decline in quality. If you really want to develop a new branch of the business, why don't you try growing it from scratch? Y'know, learn something about it first?
The fact is that good organizations are ones that specialize: they pick one area of expertise and learn to do it well. The more they get away from that central focus, the more they become a sprawling corporate behemoth that makes paper plates and sells credit cards, the more ridiculous and inefficient they become.
2 Comments:
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Google went public, very reluctantly, for two very good reasons. First, the venture capitalists who had initially funded them wanted the return on their investment. Second, SEC regulations require than any company with a minimum number of employees must go public in order to spread the risk. 100 years ago such requirements didn't exist, and it was common to have giant swings of boom and bust as a company grew huge, stayed private, and then went bust with a financial crash, after which the employees lost everything. Google knew the history of Initial Public Offerings (IPOs) because it was founded in the months after the Internet bubble popped. They resisted going public because they didn't want to have the same fate of becoming prisoner to quarterly earnings reports. That's why they mentioned several times in their IPO prospectus that they were a different kind of company, and it's also why they chose a dutch auction model for their IPO.
By
The only way to make sure a company stays privately owned is to stop hiring, or keep the number of employees at a fixed number. This is what SAS learned: attract the best talent, keep it happy, and the talent won't quite. The happiest employees are the most productive, which means the customers are the happiest, and so the company builds customer loyalty. This has helped SAS become a very profitable private company that treats its employees like a family - free health care, day care, spas, etc. However, SAS wasn't funded by Venture capitalists - VCs.
What you are pointing to is the twin illnesses of VCs and IPO regulations. VCs only get involved if a company will grow beyond its initial specialization and become a corporate powerhouse. Without VC interference, most companies can stay small and effective.
Personally, I think Google is the best thing to happen to the Internet since it went public. Google single-handedly enlarged e-mail quotas (1 GB instead of 10 MB), created a data base for free videos (a lifesaver for me), and a very nice calender (also a lifesaver), in addition to the indispensable Google News and Google Earth. Heck, without Google, life would be much worse for me and many people I know.
Marriah, at 6:38 PM
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Google didn't create free video hosting. YouTube predated Google. Google Earth only became Google Earth after Google acquired it from Keyhole. And there were news aggregators before Google News existed (Yahoo, for example). Granted, Google does all these things better, or at least used to. But now, as Publius said, the quality of most of Google's services is going downhill. Blogger outages and Gmail outages do seem to be occurring with increasing frequency. Don't even get me started about how often the new Google Toolbar crashes my browser too.
By sheepish, at 8:20 PM
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