Remember the Flip camera? From its premiere in 2006 until the business was sold to Cisco in 2009, the little video recorder was killing it. Lavish praise, booming sales, flying high. And then cell phones got good enough at recording video, and that was the end of that.
If you disregard the acquisition proceeds, was Flip a terrible business? Well, that depends: Were they taking profits along the way?
There’s no natural law that states all products and services must endure forever and always. Some companies are glorious sprints, others are slugging marathons. Both can work, but the former is especially sensitive to making money along the way.
The problem is that everyone thinks they’re going to run a spectacular marathon in technology these days. There’s no amount too great to be invested in future growth, because the future is infinite, and you’d be a fool not to capture as much of that as you possibly can.
But what if the time allotted to your capture looks more like Flip? What if your product is going to have a great, booming run, but not for the next 30 years, just the next five?
Case studies: Dropbox and Evernote
Two companies come to mind when I think of Flip: Evernote and Dropbox. Both have had tremendous success with users, both were seen and perceived themselves as “long-term sure bets”, and both are starting to look a lot less shiny these days.
Both Evernote and Dropbox are facing increasing indifference from customers and competition from simply Good Enough features in someone else’s more complete offering. “You’re a feature, not a product”, as Steve Jobs famously dismissed Dropbox (see The case against Dropbox and Evernote, The First Dead Unicorn for but two deeper analyses).
I bet you that neither heeded the lessons of Flip. I bet you that both thought they were going to be around forever, so no amount of investment in the future would be too great. I bet you that even the mere suggestion that they should be taking profits during their first, seven fat years of prosperity would have been laughed out of the boardrooms.
Don’t put it all on growth
A lot of business administration is about managing risk. Thinking about how things might pan out if you’re not as clever as you think you are, or as lucky forever as you currently seem.
Yes, investing in growth when you got a good thing going is smart. But so is thinking that you might currently be enjoying the very best years of the business, not just “the beginning of an amazing journey”.
The smart choice is making sure you win in both cases. Don’t just keep putting it all on red and rolling. Eventually, everyone’s luck or skill runs out, and then it’s awfully nice if the entire time spent playing wasn’t all for nothing.
Rajeev
on 24 Sep 15I agree with this. Especially when you have as strong a market position as Dropbox does (and has had for a few years), it’s strange they wouldn’t put a lot of focus on making money.
Trevor
on 24 Sep 15I’m always amazed at the internal cost structure of Dropbox in comparison to other tech companies.
Take Whatsapp, who develops for every mobile platform, 900M users, and only 50 employees.
Then you have Dropbox, who develops for every mobile platform, only 400M user (1/2 less), and has 1,200 employees (24x more).
Given that Dropbox has outsourced so much of their labor to AWS, it seems like they should only have 50-100 employees. Not 1,200.
@DHH, thoughts?
DHH
on 24 Sep 15Trevor, it’s always easy to claim that other people’s jobs should be simpler. And by easy I mean “potentially a trap”. But I think it stems from the idea that Dropbox was going to live forever. So even if it shouldn’t take 1200 people to run the current operation, their billion dollar in VC and revenue ALLOWS for them to be 1200 people, so there we are. All these people ready to reap an infinite future… until it isn’t.
Brandon Bayer
on 24 Sep 15For anyone keenly interested in privacy, you should check out the Dropbox alternative SpiderOak.
(I’m not affiliated, just a fan :)
Stepan
on 24 Sep 15I think the ‘long-term’ success can not be build up on one product. As Jim Collins wrote in his books: Start spinning a flywheel, give five shots and believe that one hits the target. Both companies mentioned are just one shot companies.
Well, Dropbox at least. However all Evernotes products are doing more or less the same – taking notes. Look at Microsoft, Apple, 3M, HP,... They are not built around one product.
Devan
on 24 Sep 15My bigger concern is for companies that are actively charging for their product, yet still do not seem to be able to turn a profit. Case in point, Xero. We’ve actually been using (and paying for) Xero for many years now, as well as being a development partner of theirs.
They are taking the small business accounting world by storm here in Australia (and to a smaller extent in the UK etc.) and seem to have their channel marketing down pat (via accounting firms). Yet, they have still to make a profit, and make income exceed expenses.
Fair enough for firms that are banking on giving away a free service as a loss leader against future (hopeful) income, but when you are charging what is considered a fair market price already and still don’t make a profit, then that is a cause for nerves…
Lilia
on 24 Sep 15I agree with @Stephan – a company with a long-term success is a company with diversified revenue and products. Growth is great, but expansion is better.
This discussion is closed.