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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

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.
- pas 4y ago
  thanks for typing this out! it was so strange to see Rackspace left in the dust by AWS, despite Rackspace seemingly going full steam ahead with OpenStack. yeah, OpenStack was a stinking pile of python shit cobbled together with RabbitMQ, mysql, an ungodly amount of hope and iptables rules... but AWS was also literally just a lot of Perl scripts under the hood, with a UI and UX that made DIY silicon plus Linux from Scratch appealing. yet AWS is now an undisputed king (with the same steak knives in my eyes UI/UX), and Rackspace is dying. but OpenStack lives on, and during this time k8s appeared from nothing and completely turned many things upside down. it seems the hard truth is that "fanatical support" was great, but it was simply not pushed far enough, and it took someone like Jeff Bezos to commit to it. (see "consumer obsession"). and probably the lynchpin behind "why AWS grew so big" is that the whole profit of Amazon was pumped into it. AWS has more PoPs, more services, more knobs, ... than Rackspace and OpenStack combined ever could have. and it has all these to be able to corner the market and completely extinguish competition. (as it did with books initially.)
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.

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.

pas 4y ago
thanks for typing this out! it was so strange to see Rackspace left in the dust by AWS, despite Rackspace seemingly going full steam ahead with OpenStack. yeah, OpenStack was a stinking pile of python shit cobbled together with RabbitMQ, mysql, an ungodly amount of hope and iptables rules... but AWS was also literally just a lot of Perl scripts under the hood, with a UI and UX that made DIY silicon plus Linux from Scratch appealing. yet AWS is now an undisputed king (with the same steak knives in my eyes UI/UX), and Rackspace is dying. but OpenStack lives on, and during this time k8s appeared from nothing and completely turned many things upside down. it seems the hard truth is that "fanatical support" was great, but it was simply not pushed far enough, and it took someone like Jeff Bezos to commit to it. (see "consumer obsession"). and probably the lynchpin behind "why AWS grew so big" is that the whole profit of Amazon was pumped into it. AWS has more PoPs, more services, more knobs, ... than Rackspace and OpenStack combined ever could have. and it has all these to be able to corner the market and completely extinguish competition. (as it did with books initially.)

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.