Note: This post is a collection of thoughts that is in no way complete, I invite you to join the conversation via posting your thoughts on your blog – you are always welcome to shoot me the link via email if you want.
Comments were made the other week by a well respected venture capitalist about the health of Google as a company. The comments centered around the fact that Fred Wilson thinks Google has stopped innovating, instead choosing to get new ideas and products via acquisitions. Wilson makes an incredible compelling case, one that I am inclined to agree with:
Mr Wilson […], author of the popular A VC blog and a managing partner at Union Square Ventures, said Google had not come up with anything truly transformative that was a home-grown product since Gmail, introduced in 2004. It had relied on acquisitions instead to develop new services.
One quote cannot do this blog post justice, click over and read the whole thing, it is very short.
Is Google wrong though? Wilson’s argument seems to be that the company that only acquires ideas is one that is short lived. If you ask my Wife she will confirm that I have long been saying that come 2015 Google won’t be around anymore (with the occasional proclamation that it they will be dead by 2012 – though that is not realistic). I have no concrete reasons why, it just seems to me that they have yet to figure out what will keep them alive. Android could have been a great source of money for them, but then they decided that the Android platform would not be a direct profit center, instead they would profit off of mobile search and in-app advertising – using Android to help drive those revenue sources.
There also exists this long held belief among business people that ideas are not nearly as important as execution. You often hear this from venture capitalists in the form of statements like “an idea is worthless until someone executes on it.” Which naturally implies that not every person can execute, or better still, execute well enough to be successful.
Both innovation and execution matter. They matter a lot.
Let’s look at innovation for a second, if you have a wildly innovative company, does that naturally mean that your company will also be a wild success? The obvious answer is no.
Think about it like this, if I have a great idea for a blog post that I just think will knock the socks off of anyone who reads it – does that make the blog post a hit? Of course not because I still have to write the post, meaning that unless I execute on my idea I really have nothing but a dime-a-dozen idea.
Now take execution, it is more like a 100 yard sprinter than anything else. If you have no really great ideas, but you can execute you most certainly can make some money, but it will be very short lived. Business is a marathon, and execution is only a sprinter, innovation is what you need to keep pace in the marathon.
Two examples of execution without innovation:
The Pet Rock
The idea was lousy, terrible really, but he executed very well:
The pet rock sold for $3.95 and estimates state Dahl sold over 5 million of his pet rocks in a six month period. Even more, each pet rock was purchased for a few pennies and Dahl estimated that the packaging and accompanying manual cost him under 30 cents per rock in bulk to produce. Therefore, assuming incidentals and delivery cost Dahl another 65 cents per rock, then Dahl was profiting 3 dollars per rock. With these totals Dahl earned over 15 million dollars during a six month period in 1975 which would be estimated at $56,166,419.02 today.
That was over a six month period now it is largely a cult classic – he had no innovative ideas and thus as every sprinter does he eventually ran out of breath and that was that. Though you must give him massive credit on executing extremely well on a very mundane idea.
The I am Rich App
Who remembers the I am Rich App when the iOS App store originally launched? It was an app that only had a glowing red gem in it, when pressed it would boost your already huge ego. Do you know why I know that the purchasers of this app had a huge ego? Because it costed $999.99 in the app store – not a typo.
According to Wikipedia the creator sold 8 copies before it was pulled by Apple. Again this is not a great idea, it was a poor idea that was executed very well. He made some good money with little effort put forth, yet again though it was very short lived (if Apple had not have killed it I am certain it would not have been a sustained success).
Long-term sustainable success – the success that puts your company in the Fortune 500 – is only done two ways: being innovative while executing well, or by having something that few others have (rare goods). The latter consists of oil companies, diamond companies and so on – companies that have goods that for one reason or another the general population desires. The rest are in the former category: innovative and executing well.
There are some obvious points of arguments here, such as how can I argue that Wal-Mart and Kroger are both innovative and executing things well? That is: they don’t sell rare goods, so they must fall in to the other category as defined by me. If you really look at those two companies their innovation exists in supply chain management and business management, both of which they execute very well. Innovation is not just done by creating new products, an idea is an idea.
In fact, lets take a look at the top 15 companies to better illustrate my point:
- Wal-Mart: the employee management, supply-chain management and operational efficiency has lead the way. They have executed some very ruthless business ideas in order to make their company into a powerhouse.
- Exxon Mobil: Oil, rare goods sales.
- Chevron: Oil, rare goods sales.
- General Electric: These guys have invented some of the great things out there. 4D ultra sounds, portable air conditioners, programmable clock radios. You may think that GE is a dinosaur, but then you would be wrong. 1
- Bank of America: services and financial strategy. Innovation is not just about creating new things, utilizing new theories and practices can be just as innovative. And hey they survived the financial meltdown when just about every other bank didn’t, something that required more than just dumb luck.
- ConocoPhillips: Oil, rare goods sales.
- AT&T: this will be touchy for readers but you have to remember that AT&T has its hands in a lot of other businesses besides your iPhone’s data plan. They average 2 patents every day. Think about that. 2
- Ford Motor: Uh, the assembly line and more recently the Ford Fusion Hybrid which features a SmartGauge that shows a plant with leaves that grow on it, the more efficient the driver drives the more vines and leaves the plant grows on the screen – clever.
- J.P. Morgan Chase & Co.: Same deal as Bank of America with a strong focus on investment strategies.
- Hewlett-Packard: faltering recently in innovation and execution, but still has many, many innovations under its belt – this I would guess is just a dry spell.
- Berkshire Hathaway: Warren Buffet.
- Citigroup: See Bank of America and J.P. Mogan Chase.
- Verizon Communications: LTE, Fiber Optic Internet to the home…
- McKesson: these guys are the big boys of medical consulting (i.e. they try to make the medical industry work better). Their innovations are about applying modern ideas and concepts to the medical world.
15;. General Motors: heavily invested and testing/working on fuel cells and biofuels.
I knew every answer to those 15 companies by memory with exception to McKesson, I had to research about them. Now look at Google, their greatest innovation to date is Search. Most everything else was acquired, that is why people like me are concerned about Google.
This is not to say that Google does not have smart people, or even that they do not profit every year – they do. I am simply saying, or rather asking: where is the innovation and execution? Where are all the ideas that these very smart people spend 1 day a week working on? Where? Perhaps Google is innovating all day long, but unless they start executing they are nothing more than a mashup of once innovative companies – companies that at one point executed on something. Same can be said for Facebook, though instead of acquisitions they just execute ideas that others have already executed.