When Is a Tech Company Dead?

flatlining

Last week, I had the chance to interview Andy Bechtolsheim, co-founder of Sun Microsystems and many other game-changing companies. Whether it was time spent with him, or the news that Oracle was shutting down Sun.com, I’ve been dwelling on a morbid thought: the death of a technology company.

Not a day goes by when I don’t say or hear the following:

  • Yahoo is dead.
  • Microsoft is so dead.
  • Nokia is dead.

Upon hearing me say this time and again, my friend Pip Coburn, a veteran technology investor and author of The Change Function, asked me, “What do you mean by a company being ‘dead?'” We had a long conversation, which he summed up in a newsletter to his clients.

Silicon Valley is all about the New New Thing that certainly no one aspires to gracefully age! A couple weeks ago at lunch my friend Om discussed that this company and that company were “dead.” I finally said “Hey, Om, how are you using this West Coast version of a company being ‘dead’ because the companies you just mentioned are large, still growing a touch and seem quite stable? On the East Coast we reserve “dead” for companies like Eastman Kodak or Circuit City. Do tell…”

My response to him was pretty simple — on the West Coast (or at least in Silicon Valley), we tend to live in the future. The present isn’t as interesting to most of us who live here, mostly because that would mean accepting the status quo. Instead, guys like Mark Zuckerberg and Jack Dorsey want to rearrange the world to fit the future they want to live in.

Because of this obsession with the future, we tend to get excited about companies long before they’ve proven their ideas, developed business models or generated revenues (never mind profits). The intellectual energy of a startup or a founder is what gets him/her millions of dollars for virtually nothing.

I told Pip:

We can tell when a company will no longer be involved in generating the next round of real energy in the tech/internet world, and when they hit that point, they never come back to be an energy creator and so they are “dead” in West Coast minds.

So when I (or someone around here) proclaim that Microsoft or Yahoo is dead, it doesn’t necessarily mean that the company is without revenues or without a business. Both Yahoo and Microsoft are making a ton of money and will do so for the foreseeable future. Microsoft makes so much money that it even gives dividends to its shareholders.

The idea of aging gracefully makes a lot of sense in general, but in the realm of technology it doesn’t make much sense. What about Oracle and IBM as examples of large undead companies, you might ask? I would argue that Oracle and IBM are outliers.

IBM, despite its size, has managed to reinvent and reboot itself many times — from a typewriter maker to mainframe computers to desktops to a services-driven company. IBM has used its massive R&D spending to become young again and again. The IBM of today is very different from the IBM I first started covering as a young reporter. Oracle is an exception mostly because of its leader, Larry Ellison, who is a businessperson at heart, and who knows technology and perfected a buy-and-grow strategy for his company.

What these two examples show is that even an older company can thrive if it:

  • Successfully reboots and redefines itself for the future, so it can attract the talent to get it to the future.
  • Is run by a technologically-savvy founder.

A technology company hits the “dead” phase when it’s unable to stop the bleeding of talent or attract the new talent it so desperately needs in order to create energy. The problem isn’t unique to large companies; even small startups hit that “dead” phase and lose their intellectual energy.

While bureaucracy and over-dependency on certain ideas is a problem for large companies, small companies often die because of a few primary reasons: lack of money, lack of leadership or lack of market. They are all intertwined.

If there’s no market, the money (revenues or venture capital) dries up, which means talent escapes to find new opportunities. Lack of leadership means lack of ability to make money and attract or retain talent. Lack of money — well, that means you don’t have the oxygen to stay alive.

Or as Pip said, “To paraphrase the immortal words of Billy Crystal in The Princess Bride, West Coast dead means still barely alive!”

[wufoo form=”z7m8z1″ username=”gigaom”]

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