Why Tech Companies Fail

How can you tell if a technology company has a snowball’s chance in hell of going anywhere? Easy. If it’s doing something different that customers value. Something they really want that nobody else has. That’s a good sign a tech company is going places.

On the other hand, when a company loses that edge – that value proposition, that competitive differentiation – that’s pretty much the end of the line. It may not happen today or tomorrow, but it will happen. Left unchecked, it will unravel in time.

The new term for that sort of thing is innovation. As labels go, it fits the bill: vague, amorphous, fuzzy, subjective. That’s the problem with labels. They’re so imprecise that they’re more or less meaningless, at least in any material or predictive sense.

For example, executives at companies that have lost their edge never think they have. They think they’ve still got it, that innovative mojo. Truth is they’re actually in denial. Which is pretty ironic because the signs are all there, clear as day, if you know what to look for.

What, you think you need to be on the inside to see the signs? Actually, you don’t. I might even argue that being an insider makes it harder to objectively see what’s really going on. It’s hard to gain any real perspective when you’re right smack in the middle of things.

Take the company formerly known as Research In Motion, for example. Years ago, BlackBerry was it. You couldn’t walk into a boardroom without seeing three or four executives and VCs thumbing away on the things. That’s what I call a value proposition. Customers were addicted to it and it was the only game in town.

Then Apple launched the iPhone. Google soon followed with Droid. What did RIM’s co-CEOs do? They responded with disbelief and mockery. Multi-touch screens with virtual keypads would never catch on, they reasoned. Never mind that you could now email and browse the Web. Never mind all the third-party apps.

You didn’t have to be a genius to see that was a game-changer.

It took them years to field a half-decent competitor, but by then, it was too late. Apple and Android phones and tablets had already taken over the market. And when BlackBerry’s co-founders finally resigned, they did the worst thing possible, replacing themselves with a top disciple, Thorsten Heins, who boldly proclaimed, “I don’t think that there is some drastic change needed.” And so on.

Sure, Heins did finally come to his senses, but let’s be honest here. Has BlackBerry done anything different that customers really value for the past five years or so? No. So you tell me, which way is this company going?

See how easy this is? In all seriousness, that’s a pretty extreme example. Still, it’s a darn good example of just how visible this stuff can be. And no, it’s not just 20-20 “after the fact” hindsight. I was following this story all along.

Likewise, the same kinds of signs have been visible for years at Sony, Dell, Nokia, HP, and Yahoo. Which brings us to the obvious question: how about turnarounds? Okay, let’s take a closer look and see if there’s anything different going on at these companies that customers are excited about.

On second thought, well, this is embarrassing. I can’t seem to come up with anything. The problem is that years of mismanagement – by former CEOs, in many cases – has left all these companies more or less chasing competitors and markets and doing very little in the way of material differentiation.

The truth is that successful turnarounds are really hard. That’s why they’re really rare. And technology turnarounds are even harder and more rare because technology markets are brutally competitive and ridiculously volatile. Entire competitive landscapes are remade in the blink of an eye. You snooze, you lose.

That’s why analysts have been so critical of Apple and excited about Google.

At the moment, everyone’s worried that Apple lost its innovative mojo when it lost its iconic CEO, Steve Jobs. And being so airtight secretive, you just don’t really know what’s coming next out of Cupertino. Besides, there’s simply no way to tell if an iWatch, for example, will be a hot new category killer without actually seeing one.

That’s where Google has the advantage, at least from a perception standpoint. As a search advertising company – that, incidentally, is how Google derives the vast majority of its revenue and profits – launching new and improved operating systems and cloud based applications for every type of internet-enabled device will clearly expand its ad footprint. Not to mention a cool concept like Google Glass.

The last point I want to leave you with is this. Just doing something different doesn’t cut it. Remember, customers have to see the value in it and get excited by it to plunk down their hard-earned cash on it.

Just look at former Apple retail chief Ron Johnson’s brief stint as CEO of JC Penney. When he put Apple in the retail business, he broke the mold. But when he tried the same model at an actual retail company, it was a spectacular disaster. Apple customers love those iconic stores. But that same concept – not to mention killing all the discounts and trying to up-scale the clothing lines – alienated JC Penney’s customers.

Look folks, this isn’t rocket science. If a tech company does unique things that nobody else is doing and customers are buying it, then it’s going somewhere. If not, the only place it’s going is down. Don’t over-think it. And don’t assume insiders know more than you do. Executives who are losing the battle tend toward denial, meaning you’re probably more objective than they are.