Sunday, June 18, 2017

Investors, a Necessary Evil

My biggest takeaway from this week’s reading is that investors are a necessary evil that stunt disruptive work and can disable prolonged success. Occurrences at Apple and Dell exemplify problems investors can cause, while Amazon shows ways in which a company can make the investor relationship work for them.

At the Forbes Global CEO Conference in 2013, Apple’s former CEO John Sculley said the board was to blame for Steve Jobs’ firing in 1985[1], primarily due to fears surrounding the first Macintosh. As can be expected after reading The Innovator’s Dilemma, the board, representing the shareholders, did not want to deal with a lower margin product that was not designed for its current customer base. They thought putting the time and money into the Macintosh that Jobs wanted would result in a loss.
In the Cisco article[2], Chambers discusses the importance of being bold and staying the course, citing Cisco’s work on the internet of things. Even though the market was not ready for it, they “had the courage to keep going…and eventually the market came around.” Apple did not act in this way in 1985. However, twelve years later, operating at a loss and falling behind Microsoft, Apple’s board realized they needed their disruptive innovator back, and Jobs returned.

This investor problem is further exemplified by companies that have gone public and back to private, like Dell in 2013. As an Investopedia article noted, Michael Dell took the company private “to allow it to focus more on its long-term strategy without having to answer to Wall Street and shareholders.”[3]

The leader of disruption, Amazon, is keenly aware of the way that shareholders can ruin a successful company and stays proactive about preventing such an occurrence by being open with them. In this year’s letter to his shareholders[4], Bezos describes Amazon as a Day 1 company, seemingly taking the company’s strategies straight from the pages of The Innovator’s Dilemma. He describes Day 2 as stasis which eventually results in death. Day 2 companies are the likes of Digital and IBM that Christensen discusses in his book. “In the end it is really customers and investors who dictate how money will be spent,” he writes. This causes many companies to operate safely, not wanting to disturb the status quo. As Chambers discusses in his article, companies that become comfortable with their model and afraid of change leave an opportunity for other companies to come in and take the lead. They lose their positions of leadership because they play it safe.

At Amazon, Bezos tells his shareholders, it is always Day 1. This means, among other things, eager adoption of external trends. Bezos says it is important to embrace powerful trends quickly; fighting them means you are fighting the future.  Just as Chambers noted in his article, “even great companies are imperiled if they miss a market transition.”

Another principle of being a Day 1 company is high-velocity decision making, which Bezos notes is easier for start-ups than large organizations. Chambers echoes the importance of a start-up mentality in his article. Amazon investors have been forewarned; moving quickly means not all key stakeholders may be involved in every decision. Bezos status as number-one shareholder should help to alleviate any push back from shareholders regarding this matter and others that arise from being a top innovator and disruptor. 


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