

Want to Kill Innovation at Your Company? Go Public - DanielRibeiro
http://blogs.wsj.com/atwork/2013/01/15/want-to-kill-innovation-at-your-company-go-public/

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lysium
This article isn't about innovation.

It measures 'innovation' by 'quality' of filed patents.

It measures 'quality' of filed patents by how often each patent was cited in
other patent applications.

So, the article actually finds: after going public, the number of citations on
your patents drop.

Whether or not this says something about 'your innovation' is to be debated.

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arocks
Highly misleading title. Number of patents filed and cited is an outcome of
many factors including innovation and company's focus on building a patent
stockpile. Correlation doesn't imply causation.

Companies like Pixar have only about 165 patents yet nobody would call them
less innovative.

~~~
mjn
I would guess it's actually the opposite effect causing these results:
companies that take a shotgun approach to filing patents, which is typical of
public companies, will rank lower on this patent-quality metric. The
researchers ranked companies by average citations per patent, as a proxy
measure for quality of their innovation. That would typically be higher for
companies that only file a handful of key patents, like Pixar does, rather
than companies like IBM that file tens of thousands of patents. But it still
doesn't really say much about innovation either way. If company A files 2
high-profile and 0 obscure patents, while company B files 10 high-profile and
50 obscure patents, company A will have more citations per patent on average,
but it's not clear that's measuring anything about innovation. If the proxy is
useful for anything, it's a measure of how selective a company is in filing
patents.

~~~
nostrademons
The other effect is that people's work grows more specialized as the company
grows bigger, and so each individual invention becomes more niche and less
likely to be relevant to other people. PageRank is one patent, because at the
time, Google was just Larry and Sergey (and owned by Stanford). That one
component of the system might (hypothetically) have a team of 10 maintaining
it now, and their work might (hypothetically) involve looking at obscure ways
to weight links differently or block people gaming the system. Such patents
wouldn't be useful unless you had a working PageRank system already.

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No1
For the tl;dr crowd:

A researcher used patent citations as a way to measure patent quality, used
patent quality as a proxy for innovation, and found a decrease of 40% after
going public as compared to companies that remained privately held.

~~~
redwood
A reminder that sometimes bending over backwards to demonstrate something with
_data_ that's already fairly obvious, can come across as reaching

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VeejayRampay
If HN is any indication, it's not like the point of creating companies is to
be innovative anyway.

It's all about webscaling monies.

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beachhouse
Despite the uncorrelated statistics, consider the premise "going public kills
innovation."

The company's focus inherently shifts from providing value to pleasing stock
holders. Its litmus of success is no longer value-based metrics, but rather
marginal bumps in stock price. This inevitably results in a mindset that
prioritizes short-term gains over long-term stability.

Perhaps this is why Dell is considering becoming private again.

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cllns
Measuring innovation solely by patents seems like a patently bad idea.

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michaelochurch
I think this is a correlation/causation problem. Almost no companies have
managed to keep its culture of innovation intact after going public, ergo
going public implies death of innovation.

What I think is missed is that most companies fail, culturally, before they go
public. However, when they're ramping up to IPO, they're putting lots of
lipstick on the pig, and no employee wants to say anything contrary for fear
of getting canned before a major cash-out.

Innovation requires freedom to fail without losing professional status. It
requires autonomy for the kinds of people that, in a big company, the CEO will
never have heard of. It requires open allocation, at least for the people who
are expected to be innovating. See: [http://www.quora.com/Software-
Development-Methodologies/What...](http://www.quora.com/Software-Development-
Methodologies/What-is-Open-Allocation)

Most startups begin with a constrained open allocation. You can't work on
"whatever you want" because it's driving toward MVP, product-market fit, and
profitability... but any work that is part of the company's mission (and
there's plenty of work to do) is fair game for anyone. So the division of
labor is pretty much rankless. However, at some point between 15 and 200
employees, most companies close up their project allocation, which means you
need to play politics to get assigned to real work.

Innovation dies when you go to closed allocation-- you get a caste of
entitled, permanent managers who control the division of labor, and use that
control toward their own ends (including self-perpetuation). Now, the focus of
the individual people is on (a) controlling the division of labor, and (b)
getting what they can in terms of job titles in event of exit. The environment
becomes so political that people can no longer do real work without shutting
themselves away, which usually leads to getting fired.

~~~
MattRogish
I think open allocation is a key focus which derives from "Management as
servant leaders" which is very rarely the case in _many_ organizations (not
just big ones).

I've seen plenty of small startups where the CEO-as-king was taken quite
literally ("Change the icons to cornflower blue").

Ultimately open allocation comes from a view that upper management (provided
you're not Steve Jobs) are not the "deciders" any more than everyone else are.
"We should do X because I said so" no longer happens because that's not in
your company DNA. Yes, I suppose there will be a stratification of those who
can lead and those who can't (as you've written about) but isn't that how it
should be?

Once you get around that, awesome things tend to happen. Which is why
companies that can do that will continue to kick the crap out of those that
can't.

~~~
yuhong
I think it is more about middle management than upper management.

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hapless
There was a time when the stock market was a source of early capital for new
firms to fund their growth and development. That time is past.

A firm prepares an IPO when its investors are ready to "cash out." No one
should be surprised that innovation slows down after each of the principals
has "made his nut."

~~~
herge
Good, then, because early investors will be more willing to take a chance and
give money to a start up since there is a clear path to getting that money
back.

Also, that means that there is a lot more opportunity for your start up since
public companies are saddled with this lack of innovation and all the
principals who have left now that they "have made their nut."

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fan
Those of you who say that this research is just correlation need to read the
paper for a few minutes. Shai's paper would be much less interesting if he
just looked at many patents companies did pre and post IPO.

Shai looked at companies that pulled their IPO due to random external factors,
and compared this to an group that didn't, and found that those that pulled
their IPO innovated more afterwards. It's really this clever identification
that makes this paper so well-done.

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teovall
I can't help but think that part of the issue is the huge productivity/focus
drain due to all the audits required of a public company. I work for a public
company now and I have to submit a request for change and wait for approval to
do pretty much anything related to my actual job.

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hawleyal
Software patent is not innovation.

