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The Oft-Repeated Pattern of Stakeholder Demotion and Entrepreneurial Opportunity

MJ DeMarco

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From the other thread on SONOS...


View: https://twitter.com/MJDeMarco/status/1220486233345810432


Adobe is a classic example of a company that got huge because of the value they delivered and their focus on the customer need. And as soon as their priorities shifted to profit, they lost their integrity. They are truly, completely awful now. I have so many examples of how disappointing their software is, and I've made my life on using it for 20 years.

Someone is going to come and eat their lunch. And I will enjoy watching it.

@SamRussell I downloaded trials of Affinity after seeing people trolling Adobe on their own Instagram account about how they liked Affinity better.

Think about that. This is how I learned about Affinity. From Adobe's own social media account.

Poignant story, but all too common.

Here is the often repeated pattern of stakeholder demotion that occurs when a company goes public. It is one of the "defects" of capitalism which is the source of ire for many. As a capitalist myself, I understand that it is an opportunity-- which by nature, defines capitalism.

  1. Build a great company with great products
  2. Adopt a customer/product centered approach.
  3. Grow like a weed... billions and billions!
  4. Go public
  5. Shift organizational priority to profit, beating Wall Street consensus earnings estimates every quarter
  6. Lower organizational priority for customers behind shareholders and employees (abandoning the customer-centric approach that allowed them to grow in the first place)
  7. Diminish customer service, lower value of the product, increase prices (outsource service, cheapen ingredients, "squeeze the towel!")
  8. Toss in a continuity billing model to foster #5 (e.i. Thanks Adobe!)
  9. Enjoy the slow decline of worse products, worse service, worse everything.
  10. Company reaches peak growth: enter maturation and decline ... the point old customers seek a new company to do business with.

#10 is where we entrepreneurs come in, anyone who wants to exploit the skewing opportunity.

This reoccurring truism will always exist. And it's why there is always opportunity... Adobe, Etsy, SONOS, Facebook, Upwork, Fiverr; the list is long and lengthy...
 
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PapaGang

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From the other thread on SONOS...


View: https://twitter.com/MJDeMarco/status/1220486233345810432




Poignant story, but all too common.

Here is the often repeated pattern of stakeholder demotion that occurs when a company goes public. It is one of the "defects" of capitalism which is the source of ire for many. As a capitalist myself, I understand that it is an opportunity-- which by nature, defines capitalism.

  1. Build a great company with great products
  2. Adopt a customer/product centered approach.
  3. Grow like a weed... billions and billions!
  4. Go public
  5. Shift organizational priority to profit, beating Wall Street consensus earnings estimates every quarter
  6. Lower organizational priority for customers behind shareholders and employees (abandoning the customer-centric approach that allowed them to grow in the first place)
  7. Diminish customer service, lower value of the product, increase prices (outsource service, cheapen ingredients, "squeeze the towel!")
  8. Toss in a continuity billing model to foster #5 (e.i. Thanks Adobe!)
  9. Enjoy the slow decline of worse products, worse service, worse everything.
  10. Company reaches peak growth: enter maturation and decline ... the point old customers seek a new company to do business with.

#10 is where we entrepreneurs come in, anyone who wants to exploit the skewing opportunity.

This reoccurring truism will always exist. And it's why there is always opportunity... Adobe, Etsy, SONOS, Facebook, Upwork, Fiverr; the list is long and lengthy...
Totally agree.

Quick story about old Adobe (customer focused)
I have a copy of Adobe CS3 on an old G5 mac that has no wireless card, so it exists in a time vacuum. I can't tell you how joyful that software is to use, and it's over 10 years old. Everything boots up in less than 7 seconds. No intrusive pop ups, no push notification that it needs updated, no arcane options hidden away in a sub menu of a preferences dialog box. It was perfectly imperfect.
Bugs?
We made workarounds.

Every once in awhile I will boot it up because I need to retrieve an old file, or scan a document (my old scanner is not compatible with CC of course) and I marvel at just how fast and responsive it was. As someone who spent years keeping track of my time in fifteen minute increments, I am acutely aware of how much time I am wasting, and how productive I am. And this old software just works.

There are some components of Creative Cloud that are great (dark mode, Camera Raw, vector image placement in Photoshop) but if I could I'd probably run an older install of their software made before they turned into the graphic software equivalent of AT&T.

Ok I am done beating this horse. They have already stolen too much of my life. :rofl:


But the real meat of your post is completely true and the very basis of capitalism. See an opportunity, work hard to deliver the need & value, make it bigger than yourself, fill the gap, be responsive and kind to the partners and customers that help get you there. The dollars are flowing to Affinity right now. I saw them on the landing page of Apple's App store a while back, and I think it won their app of the year. It's about to get real.
 
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Andy Black

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Reminds me of a nice little book I read years ago called “The Innovator’s Dilemma”.

My paraphrased takeaway was that the small and agile innovator often grows to the point it can no longer compete with the small and agile innovator.

The larger companies have to find *big* opportunities, leaving openings for the smaller companies - that they can then turn into big opportunities.
 

PapaGang

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From the other thread on SONOS...


View: https://twitter.com/MJDeMarco/status/1220486233345810432




Poignant story, but all too common.

Here is the often repeated pattern of stakeholder demotion that occurs when a company goes public. It is one of the "defects" of capitalism which is the source of ire for many. As a capitalist myself, I understand that it is an opportunity-- which by nature, defines capitalism.

  1. Build a great company with great products
  2. Adopt a customer/product centered approach.
  3. Grow like a weed... billions and billions!
  4. Go public
  5. Shift organizational priority to profit, beating Wall Street consensus earnings estimates every quarter
  6. Lower organizational priority for customers behind shareholders and employees (abandoning the customer-centric approach that allowed them to grow in the first place)
  7. Diminish customer service, lower value of the product, increase prices (outsource service, cheapen ingredients, "squeeze the towel!")
  8. Toss in a continuity billing model to foster #5 (e.i. Thanks Adobe!)
  9. Enjoy the slow decline of worse products, worse service, worse everything.
  10. Company reaches peak growth: enter maturation and decline ... the point old customers seek a new company to do business with.

#10 is where we entrepreneurs come in, anyone who wants to exploit the skewing opportunity.

This reoccurring truism will always exist. And it's why there is always opportunity... Adobe, Etsy, SONOS, Facebook, Upwork, Fiverr; the list is long and lengthy...
Chobani is a great example of what you are talking about. For years Dannon and Yoplait had the yogurt category locked up.

Who thought you could reinvent yogurt? That's inspiration!
 
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SEBASTlAN

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This reoccurring truism will always exist. And it's why there is always opportunity... Adobe, Etsy, SONOS, Facebook, Upwork, Fiverr; the list is long and lengthy...

The major takeaway.

I guess this is why we should pay attention to any news about IPOs and M&As.
 

Andy Black

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I guess this is why we should pay attention to any news about IPOs and M&As.
I worked for a "startup" and all they wanted to do was IPO and be acquired. Eugh...
 

PapaGang

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...the small and agile innovator often grows to the point it can no longer compete with the small and agile innovator.
That's the most brilliant thing I've read for awhile. Thanks for sharing.
 
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I needed Illustrator CC for a quick project. So i bought 2 month subscription.

Went to cancel and all seemed well, until the billing came in next month.

Turns out they disguised their cancel confirmation page, to trick you if you weren't paying careful attention.

I take full responsibility for it, but it's just like the recent Google update to trick you into clicking ads.

You have to scroll down below the fold, and click a non-discrete link that blends in with the rest of the page.

Gimp is free and open source, by the way: GIMP It does more than enough to help you create graphics for a couple of websites.
 

PapaGang

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I needed Illustrator CC for a quick project. So i bought 2 month subscription.

Went to cancel and all seemed well, until the billing came in next month.

Turns out they disguised their cancel confirmation page, to trick you if you weren't paying careful attention.

I take full responsibility for it, but it's just like the recent Google update to trick you into clicking ads.

You have to scroll down below the fold, and click a non-discrete link that blends in with the rest of the page.

Gimp is free and open source, by the way: GIMP It does more than enough to help you create graphics for a couple of websites.
This is what I'm talking about. They have a damn UI department designing things to be deliberately confusing and difficult, which results in financial mistakes made in their favor.

...for the short term.
 

NMdad

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On a smaller scale, I saw the same pattern when I worked for an ERP software startup:
  1. Startup made something their clients loved. Sold like crazy. I was a support tech, and our job was to make the clients happy--no matter how long that took. A robust internal training program created a deep well of internal expertise.
  2. Clients freaking loved us. Attending our annual conference was a party & a way to meet in-person the people they'd been talking to (and getting help from) via phone for months.
  3. Startup gets acquired by Fortune 1000 company.
  4. Internal training dramatically limited because it wasn't billable time. Emphasis on reducing time to solve client issues--which meant lots of band-aid fixes. Funky startup culture watered down by corporate policies.
  5. Employees with deep expertise leave, and some of us start consulting--doing what we'd been doing as employees (but getting paid 4-5x what our salaries had been). ERP support continues to erode, and clients are often frustrated--despite the high price they're paying for annual support.
  6. Subpar support by the former startup means plenty of business for consultants like me.
  7. Over time, more clients start looking for alternatives to the ERP application they loved so much years ago.
 
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MitchC

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Reminds me of a nice little book I read years ago called “The Innovator’s Dilemma”.

My paraphrased takeaway was that the small and agile innovator often grows to the point it can no longer compete with the small and agile innovator.

The larger companies have to find *big* opportunities, leaving openings for the smaller companies - that they can then turn into big opportunities.

I mentioned this in another thread about adobe, that book also talks about how smaller startups can take the low end of the market with a cheap and basic option not worth pursuing by the bigger business but eventually the offering from the smaller start up becomes good enough that it satisfies the needs of the majority. Affinity is getting there.
 

Andy Black

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On a smaller scale, I saw the same pattern when I worked for an ERP software startup:
  1. Startup made something their clients loved. Sold like crazy. I was a support tech, and our job was to make the clients happy--no matter how long that took. A robust internal training program created a deep well of internal expertise.
  2. Clients freaking loved us. Attending our annual conference was a party & a way to meet in-person the people they'd been talking to (and getting help from) via phone for months.
  3. Startup gets acquired by Fortune 1000 company.
  4. Internal training dramatically limited because it wasn't billable time. Emphasis on reducing time to solve client issues--which meant lots of band-aid fixes. Funky startup culture watered down by corporate policies.
  5. Employees with deep expertise leave, and some of us start consulting--doing what we'd been doing as employees (but getting paid 4-5x what our salaries had been). ERP support continues to erode, and clients are often frustrated--despite the high price they're paying for annual support.
  6. Subpar support by the former startup means plenty of business for consultants like me.
  7. Over time, more clients start looking for alternatives to the ERP application they loved so much years ago.
And the cycle begins again.

Nice example. Thanks for sharing.
 

MJ DeMarco

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The dollars are flowing to Affinity right now.

So glad there's a good competitor to Adobe now. I downloaded Affinity a couple months ago to do some quick wireframes and its 99% of what I wanted from similar Adobe tools and really fast to boot. I have the iPad and desktop apps and both are fantastic.
 

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But the real meat of your post is completely true and the very basis of capitalism. See an opportunity, work hard to deliver the need & value, make it bigger than yourself, fill the gap, be responsive and kind to the partners and customers that help get you there. The dollars are flowing to Affinity right now. I saw them on the landing page of Apple's App store a while back, and I think it won their app of the year. It's about to get real.

I contend that this is the basis for capitalism. If it was, it would not lead to a company's demise.

The basis of capitalism is to help people through business. Once that is violated, a company dies. If that was not true then SONOS would actually be growing even faster and not slowly dying by focusing on profits over service/customers.

Do you disagree?
 

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Ever notice how now when you upload a picture on your own f@cebook profile it hardly ever gets seen by your friends.

Nope no wonder, my own facebook feed is jusyt flooded with "sponsored" posts. Hardly any of it is of my friends pictures or status updates.

Instead of having an organic news feed you now have this giant shitstorm of random stupid videos and very little of your own social circle.

Im getting real tired of it.
 
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PapaGang

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I contend that this is the basis for capitalism. If it was, it would not lead to a company's demise.

The basis of capitalism is to help people through business. Once that is violated, a company dies. If that was not true then SONOS would actually be growing even faster and not slowly dying by focusing on profits over service/customers.

Do you disagree?
Who knows right now? We do know that their first step taken as a public company grew out of an effort to please shareholders over long time customers. Not a good sign. It's this sort of antagonistic attitude towards customers that buries a company under a public perception of an evil empire.

Nobody likes AT&T.
 

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Poignant story, but all too common.

Here is the often repeated pattern of stakeholder demotion that occurs when a company goes public. It is one of the "defects" of capitalism which is the source of ire for many. As a capitalist myself, I understand that it is an opportunity-- which by nature, defines capitalism.

For me this is the difference between capitalism and corporatism. The first allows for the growth and betterment of the common man or woman. The second panders to the behemoth of the corporate entity, destroying and stifling competition, swaying government legislation in order to skew the marketplace.

Once stages 6-10 have happened, then comes the only way profits can increase is by paying less tax and eroding the rights of your workers. Think Apple Ireland and zero hour contracts.

This is the sad march to corporatism, and unfortunately - especially in, though not exclusive to the United States - the corporate-industrial-media complex have convinced a lot of people that they are one and the same, that anybody who decries Amazon paying 0.1% tax is anti-capitalist.

For me Sweden have got this right, they are a virulently capitalist country, with the highest percentage of billionaires in the world, yet they have one of the most advanced social systems in place.

They have pitted corporatism (in the guise of capitalism), against socialism, as if the two are diametrically opposed, when in fact the two can coexist quite happily. Sweden is living proof of that.

I wrote an article about this some time ago, postulating the question; is it inevitable that a company will become evil? In which I take a look at the story arc of a small company, right through to big corporation, and I came to the conclusion that; yes, it is indeed inevitable.

However since watching the brilliant breakdown of Sweden's economics by the amazing Economics Explained Youtube channel, I have changed my mind.

Corporatism denounces taxation because it cuts profits, as the corporation tries to cut corners. Whereas capitalism welcomes taxation, as it uses it to further the capitalistic cause, which inevitably leads to a fairer social structure.

I know this isn't directly what you spoke of, however I believe they are linked.



I have a copy of Adobe CS3 on an old G5 mac that has no wireless card, so it exists in a time vacuum.

We are kindred spirits, I have an old power Mac (Intel) with Final Cut Pro 7 the last great FCP :cool:

I contend that this is [not] the basis for capitalism. If it was, it would not lead to a company's demise.

The basis of capitalism is to help people through business. Once that is violated, a company dies. If that was not true then SONOS would actually be growing even faster and not slowly dying by focusing on profits over service/customers.

Completely agree, and in fact laid out why above, in my answer to MJ.

I took the liberty of correcting your quote by the way; I figured the word not was missing.

Also, on another note, could you please add your website into your signature. I was trying to show some friends your site the other day, and couldn't find it. Is it the same as your name?

Anyway, remember this thread when you become a huge behemoth of a company, stay gold man! :-D
 
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Andy Black

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random stupid videos
Yeah, I’ve noticed that on Facebook too. I’ve been watching videos on both Facebook and YouTube to get my head round videos and boy, the videos on Facebook are click-baity bs. People just take some well known event or person, put some tearful music to it, and then have poorly written subtitles trying to get people to respond and share.

There must be some secret strategy being sold somewhere about how to make money with viral videos on Facebook without having to create videos.

Facebook wants to be more of a video platform because it keeps people on Facebook for longer. This drivel just got me to remove the app from my phone.
 

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Yes, I still use Fireworks, and old graphics program from circa 2002.

I use Adobe Photoshop 7.0 from 2002. Works great. Still have the install files, and it follows me from computer to computer.

I have a $30 a month subscription for the new Illustrator and it gives me pain every time I see that credit card charge. I only need it occasionally, but it's important when I do.
 

amp0193

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Instead of having an organic news feed you now have this giant shitstorm of random stupid videos and very little of your own social circle.

Is your social circle even posting anything?

I don't think anyone is posting anything on facebook anymore. Except for people my parent's age.
 
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Andy Black

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Is your social circle even posting anything?

I don't think anyone is posting anything on facebook anymore. Except for people my parent's age.
Lol. I suppose that would happen if no-one sees what you're posting.
 

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One of my 2019 New Year Goals was to delete Facebook. Been off it for 13 months now and I haven't missed it at all. It was tough the first month as I primarily talked to people through Messenger but now everyone knows to contact me on Instagram which is the only public social media I use (Funny enough its owned by Facebook).

I really like how with Instagram I can control 95% of the feed by only following people I am interested in receiving content from. Facebook became a problem for me when news and arguments kept popping up unsolicited. Instagram is a lot more positive and I learn a lot each day from some really good people who share pieces of their life and tips on how to improve (In the Real Estate, Fitness and Travel genres mainly for me).

The biggest thing that will affect Facebook is that for every person who leaves it forces others to interact with them on other platforms. All of my friends either have to call/text, WhatsApp (Also owned by Facebook) or Instagram DM me to get in contact. This is time not spent on Facebook or Messenger. Ultimately, it probably doesn't matter to them as they are all under the one banner but I see Instagram going the same way shortly. I used to post my party pictures and weird stuff that happened during my day but I'm more hesitant now as it's become more professional/older family members are beginning to use the platform more as its where the "young people are nowadays". This was the first sign that lead to me want to leave Facebook a few years back.
 

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Right on the line you point out... The leadership usually changes too. The board will pick a CEO who follows orders. Someone who isn't really a leader, but someone that is OK carrying out the will of democratized decision making that comes along with public ownership.

The heat is always up on those guys so they don't make waves.

I 100% totally agree. Once the decision making process becomes democratized, it is a 180 yard drive down the fairway. It works for a while until someone better comes along and disrupts.

The problem is that an IPO is a GREAT exit strategy in certain, more exciting, industries. It will generate unparalleled levels of personal wealth for the original proprietor(s).

When a company has an IPO, the consumers are not the only customers anymore. The shareholders are too. So what does that mean for you personally as the guy that just took your company public? Way more customers and way more money. The competing interests show themselves later because to do this, for all intents and purposes, they sold control of their company to a mini congress. What happens next is... mediocracy at best.

Companies are built on bold moves that depart from the status quo. That rarely happens at this stage unless the board gets desperate or lucky.

I'm torn on that. Do I want to build some perfect shining company or do I want to get rich and let a board impart their flavor of mediocre? That is a tough choice. I still hold we start companies to ultimately provide personal wealth. It is not that much different than just selling the company to a person that burns it to the ground. At least with a board it is a controlled burn. Is that the original entreprenuer's problem? Not really.

Meh. A bunch of pride and $2.50 will buy you a cup of coffee. It is often the right wealth building move to turn it over even if the customer experience wanes. I would rather have a bunch of money representing MY work than a company that lives on and on to see steeper and steeper competition. I will exit at prime.
 
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The biggest thing that will affect Facebook is that for every person who leaves it forces others to interact with them on other platforms. All of my friends either have to call/text, WhatsApp (Also owned by Facebook) or Instagram DM me to get in contact. This is time not spent on Facebook or Messenger. Ultimately, it probably doesn't matter to them as they are all under the one banner but I see Instagram going the same way shortly.
Could be a playbook for Facebook the company:
-Buy up and coming social media platforms (Instagram, WhatsApp)
-nudge users over to IG & WA by systemically squeezing the towels on FB (original platform).
-Sweeten the UX on IG & WA until critical mass is reached. (We are here)
My guess as to what happens next:
-Once critical mass is reached, begin the same systemic towel squeezing & user demotion to IG & WA.
-If you can’t buy the up and comer, repeat the cycle by revamping Facebook the platform to nudge users back over to Facebook.
-in the face of the mass market moving on to favor a different kind of social media, Flail like MySpace did in the early years of Facebook as the mass market moved on to a different kind of social media.

I think the next great social media platform is going to be decentralized and offer more page customization.

Enough people could be tired of the same blue washed aesthetic on every page, so it could provide the option to do intricate page customization or have an AI do it so people don’t feel left out.

I like to think that those that that demote their customers in low-regulation markets have a short time horizon.

On the other hand, customer demotion in low-regulation industries often leads to alternatives better than the original. Imagine if the admin of that entrepreneur forum in MJs early ventures life stayed a fertile garden. Our lives would be poorer today.
 
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ZF Lee

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I'm torn on that. Do I want to build some perfect shining company or do I want to get rich and let a board impart their flavor of mediocre? That is a tough choice. I still hold we start companies to ultimately provide personal wealth. It is not that much different than just selling the company to a person that burns it to the ground. At least with a board it is a controlled burn. Is that the original entreprenuer's problem? Not really.

Meh. A bunch of pride and 2.50 will buy you a cup of coffee. It is often the right wealth building move to turn it over even if the customer experience wanes. I would rather have a bunch of money representing MY work than a company that lives on and on to see steeper and steeper competition. I will exit at prime.
I'm worrying about this issue too, although I'm personally nowhere near that point haha.

I think this is a deadly wave that is being even more encouraged in the finance world...where companies are bought and sold not to provide more consolidated value to the end-customers, but to just flush the cash around.

Michael Masterson in his book 'Ready, Fire, Aim' merely suggests breaking up the biz into 'profit centers', and then getting folks to head them, and report on their performance quarterly to you.

So you still have the reins, but you leave some heavy-lifting to the folks.
Judging from the book, it feels a lot more down-to-earth than a regular board.
Thoughts?
 

Dignium

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Meh. A bunch of pride and 2.50 will buy you a cup of coffee. It is often the right wealth building move to turn it over even if the customer experience wanes. I would rather have a bunch of money representing MY work than a company that lives on and on to see steeper and steeper competition. I will exit at prime.
Same here. And I will then have the runway to build greater that that if I so choose. If pride is holding you back from a grand exit, think of the liquidation event as a oppurtunity to quickly eclipse in your next venture what you’re proud of in your current one.

Now, which large public companies didn’t demote their customers, and to this day shows that customers and shareholders are close together - years, even decades later?

What do they do, what do they put in their contracts, and how did they structure their company and shares to disincentivize customer demotion?
 
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Kak

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I'm worrying about this issue too, although I'm personally nowhere near that point haha.

I think this is a deadly wave that is being even more encouraged in the finance world...where companies are bought and sold not to provide more consolidated value to the end-customers, but to just flush the cash around.

Michael Masterson in his book 'Ready, Fire, Aim' merely suggests breaking up the biz into 'profit centers', and then getting folks to head them, and report on their performance quarterly to you.

So you still have the reins, but you leave some heavy-lifting to the folks.
Judging from the book, it feels a lot more down-to-earth than a regular board.
Thoughts?

You could, but it would be worth a lot less money to you. Offering a product and service to a market of energized customers is linear growth for the sake of argument.

Offering a financial opportunity to a market of energized investors AND offering MORE products and services to a market of energized consumers is the exponential route.

Which horse would you rather saddle up and ride as the OWNER?

The answer to that question is another question, is your business the work of art? Or is your value the work of art?

There are headwinds and tailwinds to whatever decision.

MJ is 100% right about the consumer experience.
 

Kak

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Now, which large public companies didn’t demote their customers after going public, and to this day shows that customers are close to stakeholders years, even decades after going public?

Apple is an example that did demote customers, struggled, and in desperation went back to Jobs. Jobs' leadership turned them around with the iPod. The rest is history. They became the first trillion dollar company. He set a trajectory for the company that isn't democratized. Eventually it will be again, but for now, the customer experience is considered among the best.

Disney is another that danced with the devil a little and got burned. In desperation they hired Iger. Iger is a good leader and entrusted with a lot of power by the board.
 
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