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by rco8786
1105 days ago
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Yea it’s not about short or long term, it’s just about shareholders and risk management. And honestly the system actually works pretty well. Incumbents do the thing that got them the incumbent spot, and new challengers try risky stuff to see what could beat them out. Market churn and competition fuel innovation. The cost is that incumbents occasionally get dethroned but that seems like a healthy thing overall. |
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Established companies will error twords marginal but reliable increases in income through exploiting existing products or by buying companies after they have taken the initial risks.
This goes back to the failure of GE and is still copyed by large firms today like IBM and Cisco. Who will only grow though buying smaller companies.
The existing system does work in some ways but also stifles innovation. Basically companies are forced to sell out in order to honor short term shareholders value at the cost of long term growth.
Look at how many uprising stars are acquired, lose their culture and talent and then drop from innovation to exploiting existing customers with little product growth.
While there is a well known risk aversion problem with management in our country, much of the article's points are exactly due to short term vs long term.
It is the explore/exploit tradeoff, and the exploit phase is short term focused, always preferring small reliable increases in quarterly reports over larger long term returns.
While regulations also drove some of the older innovative groups like Bell Labs, GE, Xerox and other groups quit being innovation hubs because stock market first policies and strategies lead to a very short term focus by investors.
As a concrete example, for decades IBM would buy every analog asic compiler that would be developed just to drop development and eventually support, until the market would allow for a new startup to come around. Then IBM would buy them, rinse and repeat.
It doesn't fundamentally have to be this way, but it is, and it directly relates to short term investment and policy.
Long term there aren't new challengers, there are new acquisition targets.
IMHO ideally there would be both, innovation from startups and incumbents.
But I feel that as smaller companies have limited access to capital outside of an IPO, innovation is hampered by the death of innovative companies by acquisition and attrition that is the rule these days.
Incumbents are dethroned when they become too large and risk adverse, but typically by other massive conglomerates that are also in the short term focused exploit phase and typically not by these upstarts who are subject to aquision before they can grow to market dominance.