I know the stock market is going crazy these days and churning up a lot of stomach acid, but It’s a fact of life that stock prices will always go up and down. The only sure thing is to keep your eye on the actual company performance and invest in the real winners.
This recent New York Time story that talks about the “absorption” of Xerox by Fujifilm Holdings of Japan is significant. The news is not exactly earth shaking since we have all seen the business use of paper documents collapse over the last 20 years. Xerox was a paper moving business that could nit leave the paper world behind and really innovate.
The introduction of reasonably prices fax machines in the 1980s and the subsequent integration of electronic fax modems into desktop computers back in the early 1990s should have been a strong warning to Xerox that paper documents could be on the way to extinction.
But the introduction and wide use of Business eMail and electronic documents with the help of software like Adobe Acrobat, first released on June 15, 1993 should have really sent a message to Xerox. Now you can even sign and return legal documents without printing them. The days of multi-acre office spaces stacked with files cabinets full of paper documents, and the need for multiple copies, is long gone.
But enough with the ancient history lesson… What does this Xerox collapse mean for technology companies today and for your next startup?
It all comes down to one huge problem for large companies…
The bigger they get the harder it is to really innovate. Probably every Fortune 1,000 CEO has this rule on a piece of paper tucked into his (or her) wallet.
How could this big company innovation roadblock rule actually be true?
The fact of the matter is these big companies are designed to deliver product (maybe even a service) for the lowest possible cost. There is a specific skill set involved to design, control, and execute low cost/high reliability product delivery systems. It is very different from the skill set needed for relentless pursuit of the next big (or even small) thing and the open minded discovery that leads to company transforming innovation.
The main problem is that the end-to-end innovation process has three guaranteed components:
- It will be extremely risky – Like new business startups there are so many unknowns and uncontrollable variables that these type of projects within big companies are at the extreme high end of the risk curve. No one in a big company wants to spend a few years dealing with hundreds of unknowns. It can be bad for their annual bonus.
- There is a high probability of failure – Most innovation projects will fail. And failure is no way to advance in a big company. And… It’s can be bad for your annual bonus.
- It will take time to build an innovation into a real business – These kind of innovative products (or services) may not see their first dollar of revenue for over a year. And because of bloated big company organization structures, procedures, and approval processes profitability may be several business cycles away in a world of quarter-to-quarter profit reports. Definitely not good for your annual bonus.
Are you seeing a theme here?
Hint: How can a big companies innovate if no one in the organization structure is ready to put their bonus or even actual job on the line?
The simple answer is that they can’t really innovate. It does happen form time-to-time but it definitely is not that often.
So in a world where companies are faced with the innovate or die choice every year what can they do?
They usually wait for some smart startup to take all the risk then buy the startup.
A great example is a recent story that talks about how Walmart’s Store No 8 Incubator is acquiring Spatialand, a company that builds Virtual Reality (VR) products for retail stores and websites. Sounds like a whole new way to shop and a possible Amazon killer. Any edge against Amazon is a must-have for WalMart.
Why should Walmart take the immense risk, and put some executives bonu’s in jeopardy so they can develop cutting edge advanced shopping technology when they can wait for some smart startup team to take all the risk and deliver something they can just pick off a shelf and call their own.
Walmart is a company that is really good at sourcing packaged goods and other consumer products in mass quantities from independent manufacturers all over the world and putting it on their multitude of store shelves then keeping the product restocked. This does not resemble in any way the skills needed to design, develop, manage, and deploy a high-tech VR shopping experience. If Walmart tried this they would fail. And spend a lot of money and time doing it.
Now all we need is a way for risk averse process-capable big companies to work with risk hungry technically-proficient startup companies to a keep steady stream of innovations flowing to the big companies.
I have some ideas on how this could actually work and benefit both large companies and startups, but I will save it for a future article.
Xerox will not be the last titan to fall… Who will be next?