Start-ups old and start-ups new …
For those who follow it closely, the business world, especially high tech, can offer the most interesting juxtapositions of events.
For example, this week I found myself in Los Angeles tag-teaming the keynote speech at Gov. Arnold Schwarzenegger’s Conference on Small Business and Entrepreneurship. It was the first such gathering of this kind since President Reagan held a similar event in Washington, D.C. in 1973. The chief technology topic of that conference was the potential impact of such new products as the pocket calculator and the fax machine.
Needless to say, this gathering was long overdue and kudos to the Governator (man, is he a big dude up close!) for sponsoring the event — and we can only hope that we see a similar event in Washington someday soon.
The heart of our speech was the fact that, despite our current economic troubles — and the even darker clouds on the horizon — waiting just beyond is likely to be the greatest economic opportunity, and boom, that any of us has ever known.
Why? Because of a unique intersection of forces: two billion new consumers (the biggest single jump in market size in human history), global broadband interconnection that will reach every corner of the planet, and the continuing impact of Moore’s Law — the idea that tech power will double every couple of years — which will put supercomputer power into our hands.
As you might imagine, this kind of good news got a very positive response from the crowd, which, like the rest of us, is feeling depressed these days about the economy, jobs and retirement savings. In the face of all of that, it was nice to bring an upbeat message to downbeat listeners.
Implicit in our message — as it was in the luncheon addresses by the governor and by Carl Schramm of the Kauffman Foundation (which is also behind the current Global Entrepreneurship Week), and by almost all of the presenters during the two day event — was the realization most of the new wealth and all of the net new jobs in our economy come from new, entrepreneurial enterprises.
Thus, if the only way out of our current economic predicament is to grow our way out — and I believe that’s true — then our only hope is foster entrepreneurship and help them to build healthy new companies … and not to prop up dying older firms in the misbegotten belief that they will in turn help restore the economy.
At this point, you are probably thinking I’m going to talk about the proposed bail-out of the Big Three U.S. automakers. But I’ll leave that to the experts and analysts in that industry. Rather, for my interesting juxtaposition, I want to discuss a troubled company on my own Silicon Valley turf: Sun Microsystems.
I don’t write much about Sun because, frankly, I haven’t found the company interesting in many years — especially since the departure of charismatic, always-good-for-a-quote Scott McNealy. In fact, it’s been a long time since I even understood why Sun Microsystems existed beyond a certain residual inertia from its younger days, when it dazzled the industry with its workstations and Java software platform.
But that was a long, long time ago, back when Sun — even though it had crossed $1 billion in sales — still had the bloom of dynamic start-up company. Back then, the company had a powerful esprit du corps, was led by a cocky, outspoken McNealy, and seemed to be on a path to overrun a lost Hewlett-Packard and a struggling IBM. I remember when the rest of the industry formed up around a new standard, ACE, designed to stop Sun — and McNealy came out and said, “ACE? All hat; no cattle.” That was the cockiness of Sun as a start-up.
Sun hasn’t been that company for years; indeed, it largely missed out on the dot.com boom. Still, the company had enough cachet and market power that, a half-dozen years ago I created something of a scandal by raising the question (in this very column) of why Sun Microsystems still existed.
What I said at the time was that I didn’t see the point of Sun anymore: its products were uncompetitive, its revenues, profits and market share — not to mention its stock price — were in a freefall, it was shedding thousands of employees in one round of lay-offs after another … and nothing seemed to suggest any other fate for the company than a long, slow slide to oblivion.
Would it be better, I asked at the time, if obsolete companies like Sun Microsystems simply ceased to exist, liquidated themselves and distributed the proceeds to shareholders and employees — thereby freeing both to find more productive roles with successful new start-up companies?
I got a lot of angry comments for that suggestion. And yet, here we are, six years later — and as I listen to speeches on the vital importance to our stalled economy of fast-moving, dynamic young start-up companies, I read on my computer that Sun was preparing to lay-off 6,000 more employees — 18 percent of the company — and that it’s stock value was now less than the total value of the cash and investments on its balance sheet. The latter number is usually a trigger for a quick acquisition by one of a host of suitors … but beyond a few wistful suggestions in the press that Apple might once again want to buy Sun (as if!) like it did years ago, no one seemed interested. Apparently, Sun Microsystems is now worth less than the sum of its assets. If the company was a stock option, it would be underwater.
So, I’ll ask the question again, a half-decade later: What is the purpose of a company like this? Why does it stay in existence? Other than providing salaries for 30,000 employees (who would have likely found much better jobs over the last few years in a booming Silicon Valley) what contribution has this once-great company made in the 21st Century?
Sun Microsystems is just the high-tech poster child for dead-man-walking corporations. Our economy is littered with them (though, happily, they probably number far fewer than in Europe), and they exert a tremendous, though rarely recognized, drag on our economy.
And that drag becomes even greater when we try to save them — or worse, bail them out. Surely there is a better way to put obsolete companies out of business rather than slowly wither away, tying up financial, intellectual and labor capital for years in the process.
Perhaps what we need is some kind of formal liquidation event — think of it as assisted suicide for companies in extremis — by which they can easily distribute their assets to all stakeholders, shut their doors and hold a big, drunken “gone out of business” party. Then, those assets could be recirculated back into the economy to, in part, serve as investment capital for new start-up companies — just as the employees would be returned to the labor pool, many of them bringing their experience to help run those start-ups.
The message of the Governor’s Conference on Small Business and Entrepreneurship was that good times await us just over the economic horizon. But we have to get there first — and that is going to take all of the entrepreneurial talent, innovation and investment capital we can muster. To leave all of those assets locked up in futureless companies is not only tragic, but it could even be deadly.
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27 Comments
1. njcommuter:The problem is the enormous investment in Sun equipment and the software that goes with it. A total shutdown of Sun will hurt a lot of businesses. But Sun is now open-sourcing its technology, and others are making compatible equipment. At some point, either it will fade away or someone will snap it up as part of a larger plan.
Nov 21, 2008 - 7:34 pm 2. Pajamas Media » Why Companies Should Be Allowed to Die:[...] Read the entire post here. [...]
Nov 22, 2008 - 1:40 am 3. R a Z o R:Buggy whips are no longer part of the economy
and over burdened companies can not survive .
Perhaps Obama can make the auto industry
change into a green utopia . Yes We Can .
_____________________________________________
George Romney’s son has said for over a year
that Detroit should not have a gov. bailout .
Mitt is still wanting a restructuring of our
car companies because millions of jobs are at
risk of being gone the way of the buggy whip.
_____________________________________________
Until Obama can make pies fly in the sky , I
will take Mitt Romney’s American yes we can
change things for the better and save the
jobs of millions .
….. It is the global economy , stupid …..
_____________________________________________
_________ MITT ROMNEY * BOBBY JINDAL ________
Nov 22, 2008 - 7:34 am 4. bankruptcy:At this point, you are probably thinking I’m going to talk about the proposed bail-out of the Big Three U.S. automakers. But I’ll leave that to the experts and analysts in that industry.***
Now GM announces the VOLT just as they are dying.
But it will not be released until 2010, and
It goes 50 miles before needing gas.
GM should become extinct like the dinosaur,
Nov 22, 2008 - 8:55 am 5. Mike T:Obama will provide their retirees with health insurance.
njcommuter,
That’s not necessarily true. Most of the investment has been into Sun’s platform products like Solaris and Java, both of which run on standard x86 PCs. Companies that have refused to switch over to x86 Solaris or Linux may end up getting hurt by that decision, but for a lot of their customers, all it will take is installing OpenSolaris on their next batch of servers.
Nov 22, 2008 - 9:30 am 6. njcommuter:What happens when a server fails and needs a replacement part? Are you going to force the company to replace it ahead of its budgeted, depreciation-compliant plans? If the server is leased, what does the leasing company do? Its business is predicated upon the availability of replacement parts.
Nov 22, 2008 - 9:41 am 7. Chris in Toronto:I remember oohing and aahing over Sun workstations. They really were the cat’s ass.
And Java was absolutely brilliant. Had the evil microsoft empire not interceded with its monopoly power, legally scott-free, by undermining it using the tried and true microsoft-patented technique of embracing and extending (ie: accepting the new technology, incorporating it into its product, then “extending” it by adding microsoft-only features) it would have achieved its true purpose: to provide a platform independent operating system that could run “write once” applications on all computers, without relying on the core OS. (The embrace-extend ploy was also used against Netscape, if you recall.)
Sun became an big-iron dinosaur because of Saint Bill of Redmond.
Nov 22, 2008 - 10:11 am 8. The Historian:POLITICS ASIDE, IT’S OVER IN IRAQ
Time to recognize the realities on the ground and in the Middle East generally:
http://greensrealworld.blogspot.com/2008/11/iraq-in-rear-view-mirror.html
Nov 22, 2008 - 10:24 am 9. Paul from Florida:Razor,
Mitt was for a bailout before he was against it.
Mitt, the John Kerry of Republicans. Finger to the wind, running to get in front of the crowd, and calling himself the leader.
Nov 22, 2008 - 11:27 am 10. elfman:“What happens when a server fails and needs a replacement part?”
Buy the part from someone selling it.
“If the server is leased, what does the leasing company do?”
Bank the lease payments until they’re billed again.
This is not rocket science.
Nov 22, 2008 - 11:42 am 11. David:Mike,
Professor Amar Bhidé of Columbia University has written a book espousing your long communicated theory of entrepreneurship driven economic growth (”The Venturesome Economy: How Innovation Sustains Prosperity in a More Connected World (Princeton University”).
He is interviewed on Inc.com (http://www.foxbusiness.com/story/small-business/losing-economic-edge-chance/).
Nov 22, 2008 - 8:20 pm 12. Dave:Please read the Historian link.
We have a victory in Iraq.
Nov 22, 2008 - 10:34 pm 13. G Alston:#7 Chris — “Had the evil microsoft empire not interceded with its monopoly power…[snip]”
Wrong. Java failed because it’s slow and crappy.
Java was originally intended for pen computers when the hype was all about how these were going to obsolete everything else. The idea Sun had was to use Java not knowing what chips were going to power pen machines. It was reckoned there’d be a number of specialty chipsets, none of which would be compatible with the others. It made sense from that standpoint… This emasculated C++ wannabe went to the shelf when everyone realized that pen computing was little better than vapourware.
Then, when the dot com boom happened that Sun supposedly missed, they dusted off Java and evangelized the “thin client” OS-is-irrelevant mantra which was supposed to be the death knell of evil Bill in Redmond. But Java was rubbish. Slow. They also pushed cloud computing (although they didn’t call it the cloud back then) as part and parcel of thin client. But nobody had enough bandwidth to use it. Java became fashionable, especially in the minds of the anti-Bill crowd (the same people who laughably imagined that Linux was going to replace Windoze.)
McNealy was an idiot, really. He killed Sun’s mojo trying to outdo evil Bill. He lost. And everyone could see it for miles off. (Except perhaps for the silicon valley insider who wrote this article, who probably embraced the nebulous marketing doublespeak re thin clients and Linux and so on…)
Today there’s bandwidth but Java still hasn’t taken over. Nor has Linux. And thin clients are still not what is happening; there’s little reason to push data to a cloud when local storage is a cheaper and simpler alternative.
Sun will continue to live as long as people need workstations that are faster than the alternatives. And running Solaris rather than windoze *is* faster, so they still have some juice left.
Nov 23, 2008 - 12:00 am 14. towngal1:In reference to GM, GM made a bad decision obviously when they purchased the batteries from Honda. Thinking they would do good when it was a flop. Overall any like minded soul knows that foreign built cars are better made and a better investment. So with that why try to bailout the auto industry when the american made car builders need to take to look at their plans versus the foriegn built ones and revamp them themselves. To maybe have a better built american car and be alittle more competitive. Makes sense to me and the govt doesn’t have to be involved at all.
Nov 23, 2008 - 12:08 am 15. Chris in Toronto:G Alston:
Sorry to disagree, but Java failed because the Java+Netscape environment posed a threat to microsoft. It may have been slow, granted, but all things improve with time and funding. microsoft killed it by making things such that the write once aspect had to be countered in the code with special “if os=windows, then” fixes. Same was true for writing websites when microsoft introduced explorer and bundled it into Windows. They simply do not follow standards. Period.
If we want to go even further back in time, they engineered DOS, for heaven’s sake, to have secret APIs that only they knew about and could exploit in order to undermine WordPerfect. It’s been this way since the beginning with them. Embrace-Extend-Extinguish. Tried and true.
Nov 23, 2008 - 5:26 am 16. The Historian:UNIONS: FROM FAIR TO FASCIST
“Card check” legislation means it will be labor unions that will be unfairly exploiting American working families. That is fascism, not freedom. More at this link:
http://greensrealworld.blogspot.com/2008/11/unions-from-fair-to-fascist.html
Nov 23, 2008 - 1:54 pm 17. Instapundit » Blog Archive » MICHAEL S. MALONE: Why Companies Should Be Allowed to Die….:[...] MICHAEL S. MALONE: Why Companies Should Be Allowed to Die. [...]
Nov 23, 2008 - 4:10 pm 18. OCPatriot:A Plan in the back pocket
I once did business with a number of General Motors divisions. This was some time ago. At one meeting, in Saginaw, I believe, I ran into a young man who was headed to executive status; he told me, proudly, that he was going to go to G.M. University. I blinked; I’d never heard of it. Afterwards, the more I thought about it, the more I began to realize how incestuous G.M. was when someone went to their university instead of being sent to Harvard, or M.I.T. or U.C.L.A. or Carnegie Mellon or any one of the major schools outside of the G.M. universe, so they could absorb new and different ideas about how G.M. should be run.
Alas, G.M. still seems to be caught in that incestuous, inwardly-looking mode. I would have thought, when they confronted that Congressional Committee recently, and they were asked for a “Plan”, one of them might have reached in his back pocket, and pulled one out, and said, “Here it is. We’ve been working on it feverishly. Happy to share it with you. Any improvements or suggestions are welcome.” But no, all these auto executives could do was slink off in shame and go back on their jets to the cocoon that they live in in Detroit.
Maybe they’ll come up with something; maybe not. But I kind of wish they had had a Plan in their back pocket, happy that someone asked for what they had been working on so hard to make things right.
Foolish me.
Nov 23, 2008 - 4:41 pm 19. Chaos:Java failed because:
1. Sun botched the libraries, mainly by having this insane religious bias against just using the native UI widgets, making Java applications impossible because they looked mutant and alien to those pesky users who OF COURSE didn’t care at all that the program might have looked about the same on some OTHER platform they didn’t have and didn’t care one whit about.
Then IBM did it for them (write once, but STILL get native widgets: the brilliant SWT/JFace “wrapper” library), gave it to a non-profit (The Eclipse Consortium) who then offered it to Sun for free, and Sun turned it down. (Religious bias against IBM, or just sheer stupidity. Who knows? Huge nail in the Java coffin.)
And while doing exactly the wrong thing was killing Java Sun insisted that it was the only way to go for silly reasons, sort of like saying 5 MPG was better than 30 MPG because that way you got the same mileage on your truck as on your roadster.
2. Embedded Java was never officially supported despite supposedly inventing java for that reason.
Nov 23, 2008 - 5:31 pm 20. Buford Gooch:If the government would remove itself to at least arm’s length (and preferably to the reach of a ten foot pole), companies would die on their own. We wouldn’t need any kind of plan for their senescence, they would just cease when they were no longer functional on their own. government doesn’t just bail companies out with cash, it bails them out with laws and earmarks.
Nov 23, 2008 - 5:50 pm 21. redherkey:Clayton Christensen’s work (Innovator’s Dilemma, Innovator’s Solution, etc.) is foundational to this thought. Sun, for instance, is a good example of a firm that ignored trivial technology as it evolved, only to notice it too late. Indeed, a much more responsible method of representing the shareholders would be liquidation. Sun, like most other corporations, has a serious agency problem in this regard, representing management’s desires at the expense of owners.
Nov 23, 2008 - 5:51 pm 22. Dr. Kenneth Noisewater:Err, Sun hasn’t made a “fast” workstation, relative to Intel, in like 5 years… And they’re abandoning the workstation as fast as they can, new Niagara chips are basically anti-workstation chips (lots of cores, but weak FPU). The workstations they sell that have any performance are based on AMD Opteron chips. I have one, it’s nice, and I run Linux on it because Sun doesn’t yet fully support their own hardware!! (nvidia onboard SATA is driven by emulated PATA in Solaris, native SATA driver in Linux)
Sun also has pretty decent engineering on their boxes, and they’re pretty easy to administer remotely, en masse, better than HP or Dell (especially the x4×00 AMD boxes).
If anything, I could imagine Apple buying them out, as Apple is basically retreating from enterprise IT with their tail between their legs (XServe was rubbish, as was their so-called enterprise support). If Apple wants into enterprise IT for whatever reason, they could do worse than by buying Sun. OS X already incorporates dtrace and zfs… And Apple could get very good use out of kernel wizards when it comes upcoming megacore CPUs (80 x86 cores from Intel in 2010?)..
Nov 23, 2008 - 6:41 pm 23. fustian:My recollection was that Java was really intended for embedded devices, and not pen computing. All that stuff came later. It was originally intended for washing machine and microwave controls. Toaster ovens. That sort of thing.
What killed Sun, was really an unintentional consequence of an SGI screw-up. SGI management unwisely pissed off their best graphics guys, who quit and formed their own company…NVidia. NVidia brought workstation level graphics to cheap PC’s and at cheap PC prices.
All you had to do to get access to all that cheap hardware was port your workstation software to Linux, which was pretty easy to do. If Sun had jumped on Intel and NVidia hardware a year earlier, they’d still be in the game.
Besides supporting legacy software that never made the jump to Linux, Sun is attempting to populate all those cloud servers.
It’s not clear that they are succeeding.
Nov 23, 2008 - 11:27 pm 24. fustian:I’ll also add that a very good reason to not kill companies just because someone thinks they’re dead, is that they might not be.
Many people were saying that Apple was dead a few years ago. Michael Dell, in fact, made somewhat the same statement about them that you’re making about Sun.
Sun may yet surprise us all. I hope so.
Nov 23, 2008 - 11:38 pm 25. M. Simon:If Sun had done something with its core competency in FORTH instead of inventing the FORTH/C kluge called Java I think it might have had something.
But you know every one hates Chuck Moore. His stuff is not near complicated enough. And besides you would have to fire your 27 mediocre programmers and just keep your top 3. Useless for empire building. C? Well every one does it. Like buying IBM stuff – it is safe. And besides FORTH has no belts or suspenders. And compilers can be built on 8 or 20K of code. There is nothing there to keep out the competition. Except the quality of management – speed and quality. And you know speed of product execution and quality of product are just not part of the C lexicon. And damn – what is causing that memory leak? WEll just build in an automatic reboot and forget it. Besides. How do you sell iron when programs are so small?
I think Chuck will have to die before his ideas get accepted.
Nov 24, 2008 - 5:34 pm 26. J Dubya:From reading a lot of op-eds and looking at my own history in the semiconductor industry, it seems that with the emerging, then maturing, than costed down to the lowest common denominator, then finding new horizons with lower cost labor forces, our great economy has withered due to lack of high tech production jobs. Sun made computers and software and was a good company in the hayday. Same with a lot of the companies that made the chips. A lot of college-educated colleagues had great employment in these facilities and, as a supplier to these end users of our equipment, a lot of my coworkers had great jobs as well.
I saw the horizon, in Asia, over the years of traveling to peddle our products; a vast growing depository of what-was-once-American-jobs-now-not. A lot of these major companies began to operate pilot and service facilities that are now building a lot of the products. The US began to merge these high-tech production jobs into high-tech service and support. Our economy has been merging into this service sector.
This is not a good move. As these foreign ecomonies improve, their workers become skilled and educated in these products, leading to the lack of need in the US service base. We also are more expensive as a support; especially if an engineer or specialist needs to travel overseas.
This may not apply directly to the story outlined above, but it may provide some additional fodder for the flames. When these companies struggle afloat, the workers tend to stay within and not look outside. Lemmings maybe.
If this nation does not take a stand and let the markets correct themselves, we are destined for even worse situations.
Nov 25, 2008 - 2:41 pm 27. David:In response to a posting above saying Microsoft killed Java which killed Sun, several other posters responded with good reasons why Sun’s Java failed due to Sun’s own failed execution of it.
But one thing they forgot to mention: What was the business model that would make Java a successful revenue stream for Sun, large enough to save a failing hardware company?
Answer: There was none, nor could there have been. (If you don’t believe me: try describing one.) Java was just an interesting and distracting sideshow to Sun’s main business of selling hardware. There was no way to get from inventing Java to saving Sun, even had it been done right.
Nov 25, 2008 - 5:27 pm