You’ve seen them many times. The software company that starts off like a bullet, racing at the high tech company equivalent of 0-60 mph in 4 seconds. These companies come out of nowhere, and are an immediate factor in their market.

Most Hot High Tech Companies Don’t Stand the Test of Time

There are many examples, in nearly every major market segment. Netscape comes to mind as one of the more famous. Peregrine Systems here in San Diego was another example. RIM/Blackberry is a more recent example. I’m sure every reader can think of many more.

So what is the difference between one of these high tech company “shooting stars” and the Microsoft’s, Hewlett Packard’s and Dells of the world that stood the test of time and grew into long term successes? After all, in the beginning they pretty much all look alike on the surface.

Cutting Corners

I believe if you look under the covers, however, there are real differences. It’s the difference between a fast rising house of cards and a mansion built to withstand Hurricane Katrina. You start with a solid foundation when you go to build something lasting—which of course the proverbial house of cards is lacking completely.

Now most of the time, people don’t intentionally set out to build the high tech company equivalent of a house of cards. It usually happens when the stress and strain of the marketplace gets in the way. That’s when management begins taking short cuts. It’s often an incremental thing: Cutting expenses in that key project so that you can appease Wall Street by making next quarter’s numbers. Accepting just a slightly less than normal quality level, to allow that behind-schedule new product to finally get out the door. Hiring just a few less developers or engineers than was in the plan for this year. Reducing the corporate brand-supporting Ad buy—a ten percent reduction won’t really hurt—will it?

It’s all just meant to be temporary—but cutting corners has a way of becoming the permanent default, especially when there is brutal competition or extreme pressure from Wall Street.

A Winning High Tech Company Maintains the Foundation

Every great high tech company has a foundation that it is built on—and the care and maintenance of that foundation is a non-negotiable expense for long-term success. With HP it was historically the R&D budget and reliability of its products. The R&D monster was always fed, because product innovation was what fueled the company’s growth for over 60 years–and for a long time, reliability was never compromised. The product might end up being a little too costly, a little too big, a little too heavy or late to market—but it was built like a tank and the products were unquestioned leaders in reliability. Indeed, I would say that the HP brand stood for strong reliability for many years.

Then the company lost its way, recently being split into two (still) large companies. But even before that, I don’t know that the HP brand still has the same reliability cache’ which it had in past years. It’s still a quality brand mind you, just not quite the same. The maniacal devotion to quality just hasn’t been there for a while. And it’s funny that just about the only really notable thing that has been truly “invented” at HP in recent years is the word “Invent” being placed alongside the logo in advertising during the Carly Fiorina era. Ironically, even with the dearth of HP engineering invention in recent years, R&D expenses remained high relative to competitors for many years—the worst of both worlds. It wasn’t until Mark Hurd came in and made a big splash by increasing profitability largely through cost-cutting. Sadly, he was a one-trick pony and kept cost cutting on what had been a bloated bureaucracy until he cut all the way into the bone, harming ability of the company to perform in the long run.

Microsoft was built on monopoly power and paranoia. And I don’t mean that in a negative sense. Depending upon your perspective, Microsoft either shrewdly created the DOS/Windows software monopoly position it has enjoyed for years—or luckily fell into it. I suspect it was a bit of both, but no matter. Since realizing their position, Microsoft for a long time never lost their aggressiveness or failed to leverage their monopoly platform. Many believe they overstepped at times. This strategy was largely successful, although I have always felt that they left a lot of money on the table rolling things into the Operating System—essentially giving features that had independent value away for free–in a paranoid attempt to kill any competitor that was perceived as a potential pretender to their throne. For the longest time they reacted every time there has been a threat—Apple, WordPerfect, Novell, Lotus, Netscape—the list of high tech company road-kill is quite long. They never took their eye off the ball, building and protecting their OS and Office franchise with as much firepower as required for as long as it took.

Now you can argue that their focus on these franchises and not anticipating secular technology market changes has allowed the Google’s and Apple’s of the world to outflank them and become the leaders of the technology business today. In the context of the long term view I’ve taken in this article, that’s a yet unfinished story and one to discuss another day. But still, MS is an incredibly large, successful and profitable enterprise. I believe that their aggressive corporate culture was big part of the foundation that Microsoft is built upon. It has let them survive and thrive since the infancy of the PC until today. Whether they took their eye off the ball at the beginning of the the Cloud/Mobile era–or simply failed to execute–they are still a major factor in the tech business today and will be for many years to come. Recently their cloud business has been growing strongly, so we might see them regain more of a leadership role yet.

We’ve examined a couple of long time winners—now let’s look at one of those classic shooting stars—Netscape.

Formula for Losing

It looked like the next big thing—the Microsoft of the Internet Age. They were to be the successor to the throne. They were the darlings of High Tech and Microsoft was shaking in its boots. It was one of those times where Bill, Steve and the Microsoft gang got caught napping a bit. They didn’t see the Tsunami of the Internet coming at them—until it was almost too late. But the boys from Redmond recovered in time and put all hands on deck until they finally smothered the upstart Netscape. So what happened to Netscape?

Well, in large part Microsoft happened to Netscape. Microsoft put together a Herculean effort to change their company to compete in the Internet Age. They stumbled a bit a first, giving Netscape some breathing room. Early versions of Internet Explorer (like so much software out of Microsoft over the years) were not very good. They were almost laughable, to be frank. But Microsoft traditionally has been the Terminator of the software business. It never gave up and kept coming after you regardless of short term losses. That’s one reason I’m a bit slow to write them off completely, even today. It has had a habit (and the resources) to just keeps throwing people and money at a problem and software version after version comes out until they get it right. Unfortunately, Netscape had never built a solid foundation to combat this onslaught, in my opinion. The browser was what they were about. But an early decision to use the browser as the “razor” in that classic razor/blades marketing strategy turned ultimately into a flaw. Intending to make their money on Servers, I believe that they neglected to keep the Navigator Browser as the market leader–which was the product that created the company’s market position.

It was a tough battle, with Microsoft bundling IE into the OS. But they needed to find a way, through innovation, to keep Navigator in the forefront of the browser wars. It was a tough task—no doubt. But once that browser franchise began to erode, their reason for existence began to fade away. It was really their foundation—which began to crack when it wasn’t built to last. The other mistake which compounded their plight was fighting a multi-front war with Microsoft—much like Hitler in WWII. They didn’t have mature corporate infrastructure or the right level of resources, but chose to compete head to head in many other markets Microsoft was in. Novell made the same mistake, both companies buying some second-rate competitors to Microsoft just to get in the game and compete head-to-head with MS. Instead, they should have focused their resources where they had a lead, and a chance to win—Netscape in Browsers, Novell in Networking. History tells us that the upstart high tech company must focus and win decisively in that first battlefield, before they move on. Think Amazon winning in Books before moving on to dominate nearly every category of online ecommerce. If a company can’t secure and dominate their main niche first, they almost certainly will be crushed.

How Will Google Do in the Long Run?

Which brings us back to Google. They are one of the current technology darlings and high fliers, along with Apple, Facebook and others. Once again, Microsoft treated this threat as real. We’re at that stage where it Google is winning big in search and has been for a long way. But I remember when Novell and Netscape were in front, too. It didn’t last. And I see some parallels—Google has diversified but not all that successfully, for the most part remaining a search advertising company. I’m not suggesting that Google is going away anytime soon. But their main web-based search advertising platform show signs of slowing and recently they’ve been losing mobile advertising market share to Facebook and others. Outside of YouTube and Android they haven’t really been able to create any other significant revenue streams, despite hundreds of acquisitions and much effort. This discussion may seem silly to some given Google’s current position, but remember – I’m taking a a very long term view here. There was a time when AltaVista was a dominant high tech company in Search and Google was a little-known upstart–which you couldn’t have envisioned rising to its current dominance. This is the tech business–in the long term things change a lot–and sometimes very quickly.

What do you think—what are the most important elements in the making of a great, lasting high tech company? Post a comment with your thoughts.

The post The Foundation of a Great High Tech Company is? appeared first on the Morettini on Management Blog.

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