Companies, Stars and You can’t have it all

Posted on August 24, 2010. Filed under: Astronomy, Companies, Customers, Investors | Tags: , , , , , , |

CEOs, entrepreneurs & boards all struggle with how to satisfy 1) shareholders, 2) staff and 3) customers.

It’s hard to do that really well. Indeed most companies, with some lifespan, probably make a reasonable first of keeping two, of those three, stakeholders happy. Now I reckon striking a balance and keeping all three stakeholders happy, and importantly maintaining that balance, is nigh impossible.

I could bore you with a long post trying to prove this via examples.

Rather I’m going to can explain it conceptually, as a three-sided hill, looking like this from above.

 

Supernova remnant

 

Companies that gravitate to satisfying investors/shareholders and users/customers tend to expand (very fast in the case of VC fuelled growth), get well-known, achieve success for a (relatively) short while then, so often, fade from view: Let’s call them supernovae. Think MySpace or Boo.com, one of 10 failures you never heard of or forgot about. OK, the analogy is imperfect (supernovae are the death knell of stars) but you get the drift.

What about those companies that keep investors and founders happy but ignore customers? Well they end up building something customers don’t even want. Typically these companies develop a solution then go looking for a problem. There may be lots of energy, noise, activity and engineering going on in that company but nothing much comes out of it. A bit like a black hole really!

 

A star near us

 

Companies that look after their staff and customers well are more like stars: They often have a much longer life (like companies with a sustainable business) and have a more gradual start and end, when they burn out.

Indeed some stars turn into black holes and others get wiped about by supernovae.


You know it’s hard to keep a ball on top of a hill.

 

What do you think? Got some good examples? Perhaps you disagree with my broad thesis and can cite an example that disproves it.

Any comments are welcome. I don’t expect you, or anybody, to do so on this first substantive post, but go on surprise me.

Images sources: NASA and painting of Cerberus by William Blake


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7 Responses to “Companies, Stars and You can’t have it all”

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I couldn’t agree more Colin. If you keep your customers and your staff happy, you’ll have low churn of both. Given that customer acquisition, recruitment and training are all expensive, if you can avoid spend on these activities then there’s a greater chance of your shareholders being happy by just doing what you’re doing (give or take a good strategy, of course). That’s certainly my experience.

Actually, I think the organisation has to be planning on the basis that it will not be at any coordinate for very long, it needs to be dynamic and sometimes push out more to one axis and perhaps the important thing for all stakeholders is to identify they are to some degree out on a limb which is fine for a short time but not forever.

All the time the business is moving around, ducking and diving let’s
say, it stands a good chance of making most people happy for some of the time; after all, you can’t make everyone happy all the time, we all accept that.

I think that any team of stakeholders that try to focus on one
coordinate, even if it were the perceived ideal mythical centre, would
not be making the optimal gain from situations arising, perhaps there
should be a circle of suitability to aspire to.

Interesting thoughts Bart, thanks.

You mentioned about applying the triple sided problem as a tool yourself in other situations.

Would that be in sales and/or the quality:price:delivery balance mentioned by Matt Henry?

Indeed it was, Quality, Speed and Cost, works well for several scenarios including building a house or a product.

I’ve heard of something similar re: the product – the three points are: quality, price, delivery – and the wise will never try to meet customer expectations for all three.

I’ve definitely worked for a supernovae company – pumped up via credible customers gaining rock bottom prices and huge spend – to appear as valuble as possible in a fleeting window of exit. Which the investors missed – and lost their shirt shortly after.

But I do think sustainable business is the ultimate goal – and for that the customer is king, and the founders and investors must acknowledge that and manage their expectations accordingly. The staff will usually do what is asked of them, the founders may well rail against the diminishing lack of innovation, but its the investors who are the nightmare. I watched the best CTO I’ve ever known be ousted for insisting the investors moderate their expectation to give him time to solve the technical problem that would have ended the company. He succeeded but was removed shortly afterwards.

Expectation is often it’s own worst enemy.

Good example Matt on price:quality:delivery.

Analagous to the astrophysicsal case at least the Supernova you worked at resulted in some ejection of valuable material which is resulting in the formation & growth of exciting early stage companies like Surrey Nano, no doubt others and yours at Cerberus Black.

What I really find fascinating with this model is the implicit detrimental impact it delegates to investors or shareholders: The two sides of the triangle meeting in the shareholder corner describe supposedly undesirable scenarios for an enterprise’s development. Only the edge connecting customers and company constitutes a desirable scenario.

This is actually enlightening and explains a lot of what goes on in the capital markets. And it also resonates very well with most of what the cluetrain manifesto is about and what truly internet-based services like 37signals are about: An unmediated relationship between customer and servicer, where the transaction is reciprocal: Goods for cash.

It is a helpful model. Thanks.


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    I help entrepreneurs and small high growth potential companies in Sussex, Surrey, London & sometimes further afield. Flexible to your needs but typically help in raising investment finance and mentoring. Previously I was co-founder, CTO then CEO of a software company which we sold to a NASDAQ listed company

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