The WSJ published the October 2nd, 2012 article, “Google Climbs Market-Cap Ladder; Takes Reins as Third-Biggest U.S. Company,” stating that it is the “latest example of new tech surpassing old tech.” The “old tech” is Microsoft, only a 35 year old company. However, I see the same problem of market erosion for all types of companies, big or small, in many industries. Yesterday, I had lunch with a former CEO of a small technology California company that at one point supported memory wafer manufacturers from California to Texas. Since these factories moved to Asia in the last decade, he had to shut down his company’s operations.
Now that he is financially devastated, I asked, when you noted the cash flow drop, did it occur to you to look at a market segment parallel to yours for possible opportunities? Then I asked, did it occur to you to reassess your business consistently every few years by hiring a McKinsey & Company type consulting firm to evaluate your industry and trends? It is said that, in some cultures, every year you celebrate a new year, you reassess what has been done and what will n
eed to be done for the next year. I believe that it will be good business practice for companies in this new economy to reevaluate their growth, the competitive environment, regulatory changes, and supply chains every two to three years if any company wishes to survive for many more years.
The 21st Century must be noted in the history of mankind on how quickly and effortlessly every country and culture has progressed both technologically and economically. Both the Internet and wireless telecommunications are mostly responsible for the fast changes in information now available to every culture and race throughout Earth.
Information is synonymous to economic development. Even a couple of thousand years ago, the Roman Empire demonstrated that continuous flow of information had been its key to economic growth. In pursuit of that objective, the Romans built roads that even exist today that led to the ease of commerce and communications throughout the Empire. Its flotilla of ships was noted by their efficiency in the Mediterranean. There was no part of the Roman Empire not connected to the center. And the hub of this Informational infrastructure was Rome: “All roads lead to Rome”.
And, until recently, manufacturing was always close to the center of materials, workforce, and know-how. Detroit, as an example, became the focal point for car manufacturing where transportation, resources, and raw materials converged. Now the Internet has broken those
geographical barriers. It only pays to know how to build something and that information can be downloaded through the Internet. Where anything can be manufactured with the know-how easily available? Anywhere today – Thailand, Kazakhstan, India, China, or anywhere else on this planet where human, information, and raw material resources are available.
I recall reading a book in college, “The Structure of Scientific Revolutions,” by Thomas Kuhn, which described that humankind undergoes different paradigms in thought processes and development. I describe our current period as the “The Third Industrial Revolution,” which should be more appropriately described as the Information Revolution, a paradigm where, because the ease of access of information, humanity underwent more technological changes in the last 100 years than the first Neanderthal ever walked on earth. Any business must face that this new paradigm will have an economic impact on its ability to survive in the long term.
How quick are those changes? I participated in a Caltech game conference where one investor stated that computer games face competition and changes every six months. Because
of the short life span, the VC investor has to anticipate these fast changes in the valuations. Why? The Internet.
To handle this new paradigm a company must dispense with hubris. And this brings back the early comment about Google and Microsoft. Google foresaw that the new market in this Internet era is obtaining information and identifying who obtains that information since the Internet will allow access information about anything and everywhere. And to monetize this informational migration, one had to profile the individual doing the searches. Microsoft built its operating system on the opportunity of the development of the stand alone PC. Because Microsoft was already embedded in PCs, it had the opportunity of expanding in Google’s business even before Google ever existed. Microsoft did not pursue that opportunity… maybe because it felt its economic and technological dominance could not be beaten. Microsoft should have observed Thomas Kuhn’s observations: things do change quickly with new paradigms.
For this unfortunate entrepreneur working in the memory wafer industry, he suffered quick losses in a few years. He should have acted way sooner. He thought his business had unlimited potential. He stuck to his old business model and suffered a similar fate like Netscape, Kodak, or U.S. Robotics. You must innovate faster than ever before. But his experience should be forewarning to any entrepreneur or any size company: you must reassess your company’s competitive edge every year or it will be too late. Reserve working capital to be able to turn your company on a dime once you have determined that your current business model is already obsolete. Given the nature of today’s economy, your market can disappear in 6 months!