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> He puts the blame for Rackspace’s deepening financial struggles — it’s posted a steady string of quarterly losses, and the value of its stock has fallen 80 pe

by dmix 4y ago

> He puts the blame for Rackspace’s deepening financial struggles — it’s posted a steady string of quarterly losses, and the value of its stock has fallen 80 percent in the past year — on its replacement of tech-oriented leadership with board members and managers “who don’t have any connection with the product. This seems to be the natural cycle for the vast majority of business, especially when the original founders leave or get pushed out. They enter a long period of stagnancy before the weight builds up and it collapses, or more often gets absorbed into a larger firm seeking a monopoly. The longer term Google/Meta stories are the rare exception. And that's not always a bad thing by any means.

capableweb 4y ago
> The longer term Google/Meta stories are the rare exception. And that's not always a bad thing by any means. Seemingly there are two types of companies: "Killers" and "To Be Killed". In order for you to grow like Google/Facebook, you need to "Kill" (acquire) other companies, who will be the ones who die, eventually. Rackspace went to way of being acquired, so eventually to be killed. Google/Facebook went the way of acquiring other companies. The only way to win is to not be either. Just a company that provides enough profits to cover the expenses and pay out bonuses whenever, but not acquire others nor be acquired by others.
googlryas 4y ago
Why does this happen? It seems to be self inflicted fatal wounding that businesses would try to avoid. Is it just principal/agent problem by those who are in a position to extract funds from the company? Do people think "it will be different this time!"?
- vagrantJin 4y ago
  It seems you are seeking some logical, high minded reason. There isn't. It's all about money. Nothing more.
- tinus_hn 4y ago
  Most businesses started by passionate technical founders fail as well, there is a selection bias in the big companies that are in the news. A lot is just luck, having a product that the market needs that can be sold at a profit without being undercut by competitors.
  - ghaff 4y ago
    There was a popular business book in the 80s called In Search of Excellence. Basically the authors distilled their findings down to some common principles like "Stick to your knitting." However, as our professor observed, for pretty much every one of the principles you could find counterexamples of companies that succeeded doing the exact opposite thing. And also, over long enough time horizons, you could certainly find companies where a principle like "stick to your knitting" worked--until it didn't.
- rgbrenner 4y ago
  It's not something they can avoid. These companies were often dead before any of those changes were made; and none of those changes would have been made if the company was growing and healthy. Let's say you're a late 90s company that rents servers to people (yes, Rackspace). There are lots of these companies, so to differentiate yourself, you hire some smart people to provide tech support and managed servers. You charge quite a bit of money (IIRC, they would charge like 400-500/mo for their cheapest server). Core technical ability is: managing data center costs/infrastructure and server administration (whatever is in RHEL certification). Companies love you, and give you lots of money. You operate this way for the next decade. Then one day a company comes along and says, we'll let people rent servers hourly for a couple of dollars. No support. Some of your customers move a few workloads over, sales get a tiny bit harder... but your core customer base stays, because you sell fully managed servers and AWS doesn't. Your customers arent AWS customers, for the most part. This is the foothold in the market that will eventually destroy your business... AWS will keep adding services, and eventually support contracts (which most people wont buy, meaning in general, AWS will be cheaper than rackspace). Each time AWS becomes more competitive, your position deteriorates slightly. At some point, you recognize the threat, and decide to do something. You have two choices, which may be only one, depending on how much cash/resources you have available: 1) Start building features and services to duplicate your competitor. These will be expensive and becomes more difficult if the core competency of the two businesses isnt the same (like if you admin servers, and need to produce lots of software). This will burn through your capital and shorten your lifespan if it fails; and/or 2) You can control costs to ensure the business remains profitable. This will increase your life in the short term but ensure it fails in the long term. The options that many lay people think of like decreasing prices, or increasing sales (somehow??) arent real options. A product has an entire structure behind it to deliver it, and just decreasing prices will not solve the competitive position, while increasing losses. So shortened life span, and no solution. Increasing sales isnt really an option, because if you could sell more you would... when customers have another option they prefer, selling to them becomes virtually impossible. If you run ads, for example, you'll see your metrics deteriorate, and this will limit your ad reach. Now, rackspace did both of these things... they developed openstack... which was terrible (software from a non-software company, likely contributed to that)... and when that failed they went the cost control route. My point is: No decision was made to put the company in this position... it's a position they found themselves in... and unless the leader can copy or innovate rapidly to save the company, or move the company into another segment... they'll find themselves in this poor position and likely eventually die. This bar is incredibly difficult to overcome: even if the founder was innovative, finding a new innovative product on short notice on demand while the source of funding for that declines.... most people will fail. This is why microsoft, facebook, google put an emphasis on innovating, even when they do not need to... easier to innovate when your position is strong, than in the final days of your core business.
- jakevoytko 4y ago
  "Death by a thousand cuts" doesn't show up in a spreadsheet because each cut is hidden in a different cell. We've all worked in the industry long enough. We know that if you approach the PM and say, "man, I watched my girlfriend try to use the site on her phone this weekend. She gave up because every page tried forcing her to use the app," the PM would respond, "we did some testing and not many people stop using the site when this happens, and people who use the app are 3x more engaged, so this isn't true in practice." But those tests don't show what happens 3 months from now when your girlfriend uses a competitor that doesn't have any of that shit, and she thinks "wow this is so much better" and just never goes back.
  - peytoncasper 4y ago
    I feel as if there needs to be a modification to the phrase "Data Driven". Data, generally, will not help you predict the future. It is however, fantastic at finding bias, inefficient existing processes and tracking the results of your changes. When applied blindly you end up with scenario you described. Product direction that says something isn't necessary because the question was never asked to begin with. Science without the hypothesis.
    - mrguyorama 4y ago
      "Data driven companies" aren't, because none of the people involved in making decisions ever took anything more than stats 101 and have never experienced a real world data situation where things are messy and if you aren't careful about how you measure and collect data you make it useless for decision making and also apparently because they don't teach goodharts law in business school?
  - Turing_Machine 4y ago
    > she thinks "wow this is so much better" and just never goes back. Worse still (for the original company), she then tells all her friends about the competitor that doesn't suck.
- hedora 4y ago
  At some point, they decide growth from technical innovation has mostly played out. (Did Rackspace have a path to building a sufficiently disruptive product to grow another 10x?) At this point, the MBAs try innovating in finances / marketing, as that's likely to 10x profits over time. This is why all the big Detroit automakers were essentially banks that gave you a middling car for taking out a loan when the lending crisis almost wiped them out. That strategy actually worked great for their investors (until it didn't).
- apparentbilly 4y ago
  Greed by the board. And screw the employees who have bills to pay, families to feed and may have been able to keep a business viable without this incessent need for quarterly growth. Pay the rents and wages and everything else is gravy.
- nprateem 4y ago
  Industries evolve. In this case Cloud probably killed them. They failed to adapt when a new innovation came along. This can happen for multiple reasons, but mainly because incumbents are at a disadvantage in the face of radical innovation since they not only have to learn the new tech, but unlearn the old. Some companies also double down in the face of new tech and keep improving their obviously inferior product. E.g. when refrigeration was invented, companies that shipped ice from the arctic focussed on shipping it faster instead of accepting the inevitable and pivoting while they had resources to do so.
fnordpiglet 4y ago
Once you put an accountant or MBA in charge of any company the company is dead. You can’t cost manage your way to growth.
- jibe 4y ago
  Satya Nadella has an MBA from The university of Chicago and has been doing a good job.
  - hardware2win 4y ago
    I think OP meant pure, non tech related MBA
    - deleted 4y ago
      [deleted]
    - hef19898 4y ago
      How many of those do actually exist? At tech companies in the broadest possible sense?
  - spamizbad 4y ago
    Nadella got an engineering degree in India, followed up with a masters in the US - with that Booth MBA coming after he'd worked at Sun and Microsoft as an engineer. Pretty much every "Wow this MBA does a good job of running a tech company!" person has a story similar to this where they trained and worked as an engineer before obtaining their MBA.
    - Kon-Peki 4y ago
      Ok fine :) Go read “The HP Way” by Dave Packard. It was standard procedure for HP to hire promising engineers from Flyover State U and take the best and send them to Stanford for an MBA. This worked really, really well. Until it didn’t.
      - 4y ago
esotericimpl 4y ago
[dead]
pessimizer 4y ago
> The longer term Google/Meta stories are the rare exception. I think that is more that making money as an advertising monopoly is easy, and can not only support constant Google/Meta failures in many lines of business, but even the gradual deterioration of their core offerings.
streblo 4y ago
I think this is just a story we (fellow tech-oriented types) like to tell ourselves and repeat, not because it's true, but because it sounds good. If you look, there are actually plenty of examples of professional management or 'bean counter' types taking over companies and running them more successfully than their former tech-oriented management. And also, plenty of examples of tech-oriented management ruining a good thing. But those kinds of stories don't get very good play on Hacker News.
- bombcar 4y ago
  There are definite cases of corporate looting by the bean counters, but there are certainly cases where a moribund company was saved by the counters of beans (and of course, some where the malaise was so deep nothing could have saved it).
- tqi 4y ago
  Its definitely not 100% true in either direction, but I think an "actual connection" to the product is important. Obviously YMMV on what an "actual connection" is, but to me that just means an understanding of what your product is / who your customers are / why your company has been successful in the past that goes beyond case study aphorisms like TAM / YoY Growth / etc. It's important because when things start going poorly, you need to understand where to lean in or divest.
- rendang 4y ago
  What are some good examples?
  - runako 4y ago
    Judged by earnings and general business success (not "do tech people like what they are doing?"): - Steve Ballmer @ Microsoft - Tim Cook @ Apple - Sundar Pichai @ Google (MechE by education) - Elon Musk @ Tesla (he is not an auto engineer, so functions as the monied management) There are a lot more examples out there. However, recent vintages of tech unicorns have been slower to replace founders in part due to dual-class stock structures that can give founders final veto over shareholder actions.
raiyu 4y ago
Sure the current management team is full of bean counters that aren't doing great at understanding product, but don't give the old management much credit. They completely missed the transition to cloud, they missed AWS, and they laughed when I told them that we (DigitalOcean) wanted $100MM if they were serious about any acquisition talks. This was in 2013 so startup economics were different back then. They were early to a massive market that is growing and they basically botched their lead repeatedly and every transition since then has been a comedy of errors. They would have been better off following Equinix's model of just acquiring and managing datacenter space instead they ran their own DCs, didn't have great support, couldn't build product, and ultimately were acquired by PE and saddled with debt along with no road towards innovation.

by dmix 4y ago

capableweb 4y ago

> The longer term Google/Meta stories are the rare exception. And that's not always a bad thing by any means. Seemingly there are two types of companies: "Killers" and "To Be Killed". In order for you to grow like Google/Facebook, you need to "Kill" (acquire) other companies, who will be the ones who die, eventually. Rackspace went to way of being acquired, so eventually to be killed. Google/Facebook went the way of acquiring other companies. The only way to win is to not be either. Just a company that provides enough profits to cover the expenses and pay out bonuses whenever, but not acquire others nor be acquired by others.

googlryas 4y ago

Why does this happen? It seems to be self inflicted fatal wounding that businesses would try to avoid. Is it just principal/agent problem by those who are in a position to extract funds from the company? Do people think "it will be different this time!"?

vagrantJin 4y ago
It seems you are seeking some logical, high minded reason. There isn't. It's all about money. Nothing more.
tinus_hn 4y ago
Most businesses started by passionate technical founders fail as well, there is a selection bias in the big companies that are in the news. A lot is just luck, having a product that the market needs that can be sold at a profit without being undercut by competitors.
- ghaff 4y ago
  There was a popular business book in the 80s called In Search of Excellence. Basically the authors distilled their findings down to some common principles like "Stick to your knitting." However, as our professor observed, for pretty much every one of the principles you could find counterexamples of companies that succeeded doing the exact opposite thing. And also, over long enough time horizons, you could certainly find companies where a principle like "stick to your knitting" worked--until it didn't.
rgbrenner 4y ago
It's not something they can avoid. These companies were often dead before any of those changes were made; and none of those changes would have been made if the company was growing and healthy. Let's say you're a late 90s company that rents servers to people (yes, Rackspace). There are lots of these companies, so to differentiate yourself, you hire some smart people to provide tech support and managed servers. You charge quite a bit of money (IIRC, they would charge like 400-500/mo for their cheapest server). Core technical ability is: managing data center costs/infrastructure and server administration (whatever is in RHEL certification). Companies love you, and give you lots of money. You operate this way for the next decade. Then one day a company comes along and says, we'll let people rent servers hourly for a couple of dollars. No support. Some of your customers move a few workloads over, sales get a tiny bit harder... but your core customer base stays, because you sell fully managed servers and AWS doesn't. Your customers arent AWS customers, for the most part. This is the foothold in the market that will eventually destroy your business... AWS will keep adding services, and eventually support contracts (which most people wont buy, meaning in general, AWS will be cheaper than rackspace). Each time AWS becomes more competitive, your position deteriorates slightly. At some point, you recognize the threat, and decide to do something. You have two choices, which may be only one, depending on how much cash/resources you have available: 1) Start building features and services to duplicate your competitor. These will be expensive and becomes more difficult if the core competency of the two businesses isnt the same (like if you admin servers, and need to produce lots of software). This will burn through your capital and shorten your lifespan if it fails; and/or 2) You can control costs to ensure the business remains profitable. This will increase your life in the short term but ensure it fails in the long term. The options that many lay people think of like decreasing prices, or increasing sales (somehow??) arent real options. A product has an entire structure behind it to deliver it, and just decreasing prices will not solve the competitive position, while increasing losses. So shortened life span, and no solution. Increasing sales isnt really an option, because if you could sell more you would... when customers have another option they prefer, selling to them becomes virtually impossible. If you run ads, for example, you'll see your metrics deteriorate, and this will limit your ad reach. Now, rackspace did both of these things... they developed openstack... which was terrible (software from a non-software company, likely contributed to that)... and when that failed they went the cost control route. My point is: No decision was made to put the company in this position... it's a position they found themselves in... and unless the leader can copy or innovate rapidly to save the company, or move the company into another segment... they'll find themselves in this poor position and likely eventually die. This bar is incredibly difficult to overcome: even if the founder was innovative, finding a new innovative product on short notice on demand while the source of funding for that declines.... most people will fail. This is why microsoft, facebook, google put an emphasis on innovating, even when they do not need to... easier to innovate when your position is strong, than in the final days of your core business.
jakevoytko 4y ago
"Death by a thousand cuts" doesn't show up in a spreadsheet because each cut is hidden in a different cell. We've all worked in the industry long enough. We know that if you approach the PM and say, "man, I watched my girlfriend try to use the site on her phone this weekend. She gave up because every page tried forcing her to use the app," the PM would respond, "we did some testing and not many people stop using the site when this happens, and people who use the app are 3x more engaged, so this isn't true in practice." But those tests don't show what happens 3 months from now when your girlfriend uses a competitor that doesn't have any of that shit, and she thinks "wow this is so much better" and just never goes back.
- peytoncasper 4y ago
  I feel as if there needs to be a modification to the phrase "Data Driven". Data, generally, will not help you predict the future. It is however, fantastic at finding bias, inefficient existing processes and tracking the results of your changes. When applied blindly you end up with scenario you described. Product direction that says something isn't necessary because the question was never asked to begin with. Science without the hypothesis.
  - mrguyorama 4y ago
    "Data driven companies" aren't, because none of the people involved in making decisions ever took anything more than stats 101 and have never experienced a real world data situation where things are messy and if you aren't careful about how you measure and collect data you make it useless for decision making and also apparently because they don't teach goodharts law in business school?
- Turing_Machine 4y ago
  > she thinks "wow this is so much better" and just never goes back. Worse still (for the original company), she then tells all her friends about the competitor that doesn't suck.
hedora 4y ago
At some point, they decide growth from technical innovation has mostly played out. (Did Rackspace have a path to building a sufficiently disruptive product to grow another 10x?) At this point, the MBAs try innovating in finances / marketing, as that's likely to 10x profits over time. This is why all the big Detroit automakers were essentially banks that gave you a middling car for taking out a loan when the lending crisis almost wiped them out. That strategy actually worked great for their investors (until it didn't).
apparentbilly 4y ago
Greed by the board. And screw the employees who have bills to pay, families to feed and may have been able to keep a business viable without this incessent need for quarterly growth. Pay the rents and wages and everything else is gravy.
nprateem 4y ago
Industries evolve. In this case Cloud probably killed them. They failed to adapt when a new innovation came along. This can happen for multiple reasons, but mainly because incumbents are at a disadvantage in the face of radical innovation since they not only have to learn the new tech, but unlearn the old. Some companies also double down in the face of new tech and keep improving their obviously inferior product. E.g. when refrigeration was invented, companies that shipped ice from the arctic focussed on shipping it faster instead of accepting the inevitable and pivoting while they had resources to do so.

fnordpiglet 4y ago

Once you put an accountant or MBA in charge of any company the company is dead. You can’t cost manage your way to growth.

jibe 4y ago
Satya Nadella has an MBA from The university of Chicago and has been doing a good job.
- hardware2win 4y ago
  I think OP meant pure, non tech related MBA
  - deleted 4y ago
    [deleted]
  - hef19898 4y ago
    How many of those do actually exist? At tech companies in the broadest possible sense?
- spamizbad 4y ago
  Nadella got an engineering degree in India, followed up with a masters in the US - with that Booth MBA coming after he'd worked at Sun and Microsoft as an engineer. Pretty much every "Wow this MBA does a good job of running a tech company!" person has a story similar to this where they trained and worked as an engineer before obtaining their MBA.
  - Kon-Peki 4y ago
    Ok fine :) Go read “The HP Way” by Dave Packard. It was standard procedure for HP to hire promising engineers from Flyover State U and take the best and send them to Stanford for an MBA. This worked really, really well. Until it didn’t.
    - 4y ago

esotericimpl 4y ago

[dead]

pessimizer 4y ago

> The longer term Google/Meta stories are the rare exception. I think that is more that making money as an advertising monopoly is easy, and can not only support constant Google/Meta failures in many lines of business, but even the gradual deterioration of their core offerings.

streblo 4y ago

I think this is just a story we (fellow tech-oriented types) like to tell ourselves and repeat, not because it's true, but because it sounds good. If you look, there are actually plenty of examples of professional management or 'bean counter' types taking over companies and running them more successfully than their former tech-oriented management. And also, plenty of examples of tech-oriented management ruining a good thing. But those kinds of stories don't get very good play on Hacker News.

bombcar 4y ago
There are definite cases of corporate looting by the bean counters, but there are certainly cases where a moribund company was saved by the counters of beans (and of course, some where the malaise was so deep nothing could have saved it).
tqi 4y ago
Its definitely not 100% true in either direction, but I think an "actual connection" to the product is important. Obviously YMMV on what an "actual connection" is, but to me that just means an understanding of what your product is / who your customers are / why your company has been successful in the past that goes beyond case study aphorisms like TAM / YoY Growth / etc. It's important because when things start going poorly, you need to understand where to lean in or divest.
rendang 4y ago
What are some good examples?
- runako 4y ago
  Judged by earnings and general business success (not "do tech people like what they are doing?"): - Steve Ballmer @ Microsoft - Tim Cook @ Apple - Sundar Pichai @ Google (MechE by education) - Elon Musk @ Tesla (he is not an auto engineer, so functions as the monied management) There are a lot more examples out there. However, recent vintages of tech unicorns have been slower to replace founders in part due to dual-class stock structures that can give founders final veto over shareholder actions.

raiyu 4y ago

Sure the current management team is full of bean counters that aren't doing great at understanding product, but don't give the old management much credit. They completely missed the transition to cloud, they missed AWS, and they laughed when I told them that we (DigitalOcean) wanted $100MM if they were serious about any acquisition talks. This was in 2013 so startup economics were different back then. They were early to a massive market that is growing and they basically botched their lead repeatedly and every transition since then has been a comedy of errors. They would have been better off following Equinix's model of just acquiring and managing datacenter space instead they ran their own DCs, didn't have great support, couldn't build product, and ultimately were acquired by PE and saddled with debt along with no road towards innovation.