I know a couple of guys at Cisco who were brought in as part of an acquisition. They are members of a couple of meetups I attend. Their ranting about corporate culture sparked some thoughts about corporations and startups. I think there are a lot of things about the world that are the result of choices that were made before us, and not immutable laws of nature. Innovation can only happen in startups and corporations must be inflexible behemoths are two of those ideas.
This made me think of an article on Wolf Street: Cisco Buys 45th Company in 5 Years, Revenues Still Stagnate. The title gives the basic idea of the article. From 2012 to 2017, Cisco bought 45 companies. Cisco has not disclosed the prices for all of those acquisitions. For 19 of them, it spent $18.2 billion.
We do not have an alternative reality to compare to ours. Perhaps the acquisitions are the only thing that prevented Cisco’s revenue from declining. Nevertheless, here is a table with revenue and income from 2010 to 2019 (in millions):
| FY | Revenue | Net Income |
|---|---|---|
| 2019 | 51,904 | 11,621 |
| 2018 | 49,330 | 110 |
| 2017 | 48,005 | 9,609 |
| 2016 | 49,247 | 10,739 |
| 2015 | 49,161 | 8,981 |
| 2014 | 47,142 | 7,853 |
| 2013 | 48,607 | 9,983 |
| 2012 | 46,061 | 8,041 |
| 2011 | 43,218 | 6,490 |
| 2010 | 40,040 | 7,767 |
I don’t know why income took a dive in 2018. It has gone up over the decade. But as the Wolf man says, it does not look like they got a great rate of return on their investments in acquisitions. Cisco spent billions on startups, and really has nothing to show for it.
Why not just hire people to expand? It might have cost less.
In my understanding of the VC world, not every investment makes a profit. An exit must cover the cost of the failed startups as well as cost of successful startups, in addition to a profit. And a new car or boat for the jackass VCs. (And there might even be a sexual harassment settlement in there as well.) Maybe the cost of the failed companies is not a line item in an acquisition agreement or IPO prospectus, but those costs are still embedded in an exit.
Instead of a big corporation acquiring one profitable startup from a VC that also has to make up for nine failed startups, why can’t big corporations start a dozen or so project teams, and shift people into the ones that are successful? When a corporation acquires a startup or a startup has an IPO, a lot of the upside has already happened. Why not keep some for yourself? Where does this idea that innovation can only happen at startups come from?
I think that like needing a car outside of a big city in the USA (and even in some big cities), a lot of people think that this is some immutable law of nature. I think this is the result of many, many choices, even some that were made for us that we do not know about. Maybe changing it would be next to impossible. Maybe Texas will never get mass transit. (Because nothing says “freedom!!” like spending an hour every day going 10 MPH when the speed limit is 60.) Just because things are this way does not mean things have to be this way. I think this is an example of the Is-ought fallacy.
My Meetup acquaintance have said things like, “Cisco would not have let us do this in language X or with library Y if the project started there.” If that were true, then that would be a choice. There is no reason that an internal team cannot try something in a new programming language. There might be people in the company who would like to try new technology. If a corporation is willing to buy a team that uses a new language, they should be willing to let internal teams have the same freedom.
Except Scala. It really is vile.
Some big corporations used to have research labs: PARC is still a part of Xerox. It may not be much now, but Xerox was one of the biggest companies in the world. (Carl Icahn got a hold of Xerox, so things are not going too well.) Bell Labs is now part of Nokia. A lot of groundbreaking technology came out of those organizations. Real innovation, not the bogus innovation we get from Silicon Valley today, like Uber (combining taxis, phones and indentured servitude) or WeWork (“We are the middleman, and do NOT pass the saving on to you, because frankly we are losing money”). All Silicon Valley has given us in the past decade is advertising, mass surveillance, and more ways of losing money.
And who pushes the line that innovation can only come from startups and VCs? People in the startup/VC ecosystem. Ecosystem and “echo chamber” are synonymous here.
Big Jim wants us to make great things again.
Image from Wikimedia, assumed allowed under Fair Use. Painting of the Annunciation by Duccio di Buoninsegna (c. 1255–1260 – c. 1318–1319), aka “The Duce”. Finally, this site takes a Duce.