Are companies built to “flip” versus built to last?

 

 

The above link is a concept that defies regular managment practices.

 

The article discusses how companies are increasingly built to sell based on potential to generate instant returns instead of the traditional practice of building sustainable businesses.  The “traditional” business mantra extends to a reason/purpose for the business to exist beyond profit motives.  These core values are embedded as an organizational culture.  According to the author, the traditional business model generates higher long-term returns.   

 

The main catalyst for this new model of businesses being built to “flip” instead of being built to “last” was from Venture Capitalists and from Wall Street.  In fact, the number of VC-backed start-ups more than doubled in the late 90s versus in the 80s.  The author included multiple examples of businesses that were being “flipped” and turned out that these businesses were not sustainable and did not generate the expected returns.  Some examples were during the late 1990’s technology bubble, when technology firms announced their IPOs, valuation of these firms generated unprecendented values.

 

The author mentioned that there were two cases that this model is viable:

 

1)   Leverage creative insight of one individual – e.g. Thomas Edison.  After this person/people created their invention(s), the company’s raison-d’etre waned. If the inventor/inventor(s) decides to leave the firm, their company’s raison-d’etre is history.

 

2) Sell technology to a larger company.  This small company does not need to have either the economy of scope or scale to develop a niche product.  They focus only on their core competency – their product/service.  Other business functions that are essential to the sale of the product/service such as distribution can be adopted by the larger company.

 

The author states that this “Built to flip” model is not sustainable. It devalues the tenet of a business’s raison-d’etre which is to contribute in a sustainable method to the economy. To simply dump a company based only on potential rather than sound financials cannot be sustainable. Markets are self-adjusting and would recognize the lack of substance.

 

Does the selected company built to work? Does it contribute? Is it meaningful – the sense of purpose beyond money?

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One response to “Are companies built to “flip” versus built to last?

  1. The article “Built to flip” reminds me so much on the “technology bubble”. At that time, technology stocks were the surely win. Mediocre friends and colleagues struck gold only because of staying in a built-to-flip company but not because their abilities. We saw the miracle done by the technology stocks until the bubble busted.

    Fortunately, markets self-adjust and reward the actual contribution. I agree with the author that we will not only have the financial success but also sense of achievements if we our answers are yes to

    Does the selected company built to work? Does it contribute? Is it meaningful – the sense of purpose beyond money? Do we commit to hard work with persistence

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