I think this depends a whole lot on the domain/product, the scalability vs locality question (cookies get worse if more are made in the same place and then distributed, most software doesn’t), and the network effect (software that depends on many people using the same thing).
I love my Kindle (and have since the ugly angular V1). It would be very hard to argue that Amazon is particularly good at “one thing well”, though. Almost none of it’s other products are that focused, and it’s only because serious readers spend so much on books that they’ve kept the Kindle fairly pure.
More generally, focusing on a single thing is HARD. You need to find a thing that people are willing to pay for (either a few paying a lot or a lot paying a bit), and that you can make more cheaply and better than your competitors. For most enterpreneurs, the path to that is to do a lot of things, then cut the ones which aren’t that successful. This is a SEARCH strategy, not a long-term octopus vision. They’re trying to find the one (or few very related) things that they can do well (and do well for themselves). Many of them don’t actually find it, so they either just get used to “do lots of stuff pretty badly”, or give up.
Brian Chesky, a co-founder of AirBnB, claimed that their company did get bloated and they lost focus before Covid happened and they had to cut the fat or die. And he claimed this error is common amongst late-state startups. From “The Social Radars: Brian Chesky, Co-Founder & CEO of Airbnb (Part II)”. So I think turning into an octupus is something that happens to succesful startups, and is probably what’s happening to Dropbox.
Uh, Brian did cut out a great deal of fat from AirBnB and the company clearly survived its brush with death due to Covid19. So I don’t see why you’d say it didn’t work.
Ah, that makes sense! Well, it does seem to work out for some businesses, in particular East Asian business conglomerates. Let me quote from a common cog article on the topic of near every company having an equillibrium point past which further growth is difficult w/o a line of capital.
Chinese businessmen and the SME Loop
With a few notable exceptions, the vast majority of successful traditional Chinese businessmen have chosen the route of escaping the SME loop by pursuing additional — and completely different — lines of businesses. This has led to the prevalence of ‘Asian conglomerates’ — where a parent holding company owns many subsidiaries in an incredibly diverse number of industries: energy, edible oils, shipping, real estate, hospitality, telecommunications and so on. The benefit of this structure has been to subsidise new business units with the profits of other business units.
Why a majority of Chinese businessmen chose this route remains a major source of mystery for me. When I left the point-of-sale business in late 2017, I wondered what steps my boss would take to escape the SME loop. And I began to wonder if the first generation of traditional Chinese businessmen chose the route of multiple diversified businesses because it was the easiest way to escape the SME loop … or if perhaps there was something about developing markets that caused them to expand this way.
(And if so, why are there less such conglomerates in the West? Why are these conglomerates far more common in Asia? These are interesting questions — but the answers aren’t readily available to me; not for a few decades, and not until I’ve have had the experience of growing such businesses.)
Perhaps the right way to think about this is that the relentless pursuit of growth led them to expand into adjacent markets — and the markets for commodities and infrastructure was ripe for the taking in the early years of South East Asia’s development.
Here, we see that chinese businessmen expand to keep up their free cash flow to fund their attempts to innovate enough to keep growing to larger scales.
It seems to me like many of those business conglomerates are privately held. The stock market seems to prefer if businesses parts that have no synergy with the main business get sold off.
On the stock market it’s easy for capital owners to diversify their assets. When companies are privately held building such business conglomerates might be the way to diversify.
If an investor wants to invest in a couple of different markets then that investor can choose some companies in those markets and buy shares. A single company in two non-synergistic markets is just silly from this perspective, if it was instead two companies investors would be more able to specifically choose which part they like.
If the company doesn’t have shares (privately held) then this incentive does not exist.
In “Capitalism and Freedom” Milton Freidman has a section about diverse companies. The book is probably dated but some aspect of the 1960′s American tax system meant that if a company you owned shares in paid you a dividend you paid tax on it, but if they re-invested a profit that was not taxed. This meant that, if (cartoon example) 100% of the shareholders in Company A wanted to take their dividends and invest them in a start-up that does X, the same thing can be done more tax efficiently by Company A instead not paying any dividends and using the money to set up a new arm that does X (the new arm essentially being a separate startup company in all but name).
Freidman thought this was a reasonably serious distortion on markets and that investors should have to pay tax on re-invested profits at the same rate as dividends, to correct for it.
Perhaps some aspect of tax systems in some countries is having a similar effect, that taking some money out of my lawnmower company to invest in a chip foundry would incur more taxes than expanding the company to do both lawnmowers and computer chips.
I think this depends a whole lot on the domain/product, the scalability vs locality question (cookies get worse if more are made in the same place and then distributed, most software doesn’t), and the network effect (software that depends on many people using the same thing).
I love my Kindle (and have since the ugly angular V1). It would be very hard to argue that Amazon is particularly good at “one thing well”, though. Almost none of it’s other products are that focused, and it’s only because serious readers spend so much on books that they’ve kept the Kindle fairly pure.
More generally, focusing on a single thing is HARD. You need to find a thing that people are willing to pay for (either a few paying a lot or a lot paying a bit), and that you can make more cheaply and better than your competitors. For most enterpreneurs, the path to that is to do a lot of things, then cut the ones which aren’t that successful. This is a SEARCH strategy, not a long-term octopus vision. They’re trying to find the one (or few very related) things that they can do well (and do well for themselves). Many of them don’t actually find it, so they either just get used to “do lots of stuff pretty badly”, or give up.
Brian Chesky, a co-founder of AirBnB, claimed that their company did get bloated and they lost focus before Covid happened and they had to cut the fat or die. And he claimed this error is common amongst late-state startups. From “The Social Radars: Brian Chesky, Co-Founder & CEO of Airbnb (Part II)”. So I think turning into an octupus is something that happens to succesful startups, and is probably what’s happening to Dropbox.
I certainly see this pattern in late-stage startups, and it seems like for Airbnb it didn’t work.
Maybe there’s an in-between path. I wonder how Dropbox could have evolved if it had remained more loyal to its original root.
Uh, Brian did cut out a great deal of fat from AirBnB and the company clearly survived its brush with death due to Covid19. So I don’t see why you’d say it didn’t work.
Oh, I meant for the bloated approach as for the reason why it didn’t work out.
Ah, that makes sense! Well, it does seem to work out for some businesses, in particular East Asian business conglomerates. Let me quote from a common cog article on the topic of near every company having an equillibrium point past which further growth is difficult w/o a line of capital.
Here, we see that chinese businessmen expand to keep up their free cash flow to fund their attempts to innovate enough to keep growing to larger scales.
It seems to me like many of those business conglomerates are privately held. The stock market seems to prefer if businesses parts that have no synergy with the main business get sold off.
On the stock market it’s easy for capital owners to diversify their assets. When companies are privately held building such business conglomerates might be the way to diversify.
This makes a lot of sense actually.
If an investor wants to invest in a couple of different markets then that investor can choose some companies in those markets and buy shares. A single company in two non-synergistic markets is just silly from this perspective, if it was instead two companies investors would be more able to specifically choose which part they like.
If the company doesn’t have shares (privately held) then this incentive does not exist.
In “Capitalism and Freedom” Milton Freidman has a section about diverse companies. The book is probably dated but some aspect of the 1960′s American tax system meant that if a company you owned shares in paid you a dividend you paid tax on it, but if they re-invested a profit that was not taxed. This meant that, if (cartoon example) 100% of the shareholders in Company A wanted to take their dividends and invest them in a start-up that does X, the same thing can be done more tax efficiently by Company A instead not paying any dividends and using the money to set up a new arm that does X (the new arm essentially being a separate startup company in all but name).
Freidman thought this was a reasonably serious distortion on markets and that investors should have to pay tax on re-invested profits at the same rate as dividends, to correct for it.
Perhaps some aspect of tax systems in some countries is having a similar effect, that taking some money out of my lawnmower company to invest in a chip foundry would incur more taxes than expanding the company to do both lawnmowers and computer chips.
These days companies frequently buy back shares because they can do that without having to pay taxes for that.