Coarsening of software firms

Joel Spolsky as to why you should grow at break-neck speed if you do not want to disappear:

Then I came across a quote from Geoffrey Moore, who is best known for his best-selling book Crossing the Chasm, which is about how businesses cross over from their initial niche markets to dominate larger markets. In another book, called Inside the Tornado, Moore writes about the great battle between Oracle and Ingres in the early 1980s. The winner of that battle is well known: Oracle now has a market cap of more than $100 billion, and I’ll bet you’ve never heard of Ingres.

“What set Oracle apart from Ingres,” Moore writes, “was that [CEO] Larry Ellison drove for 100 percent growth while Ingres ‘accepted’ 50 percent growth.” Executives at Ingres meant well. According to Moore, they felt that the company “simply cannot grow any faster than 50 percent and still adequately serve our customers. No one can. Look at Oracle. They are promising anything and everything and shipping little or nothing. Everybody knows it. Their customers hate them. They are going to hit the wall.”

Of course, Oracle overcame those concerns and eclipsed its rival. And this got me worried. Were we Ingres?

I had to wonder. We do have a large competitor in our market that appears to be growing a lot faster than we are. The company is closing big deals with big, enterprise customers. And the wheels are falling off the donkey cart over there as the company stretches to fulfill its obligations. Meanwhile, our product is miles better, and we’re a well-run company, but it doesn’t seem to matter. Why?

Moore explains that “for pragmatist customers, the first freedom in a rapidly shifting market is order and security. That can only come from rallying around a clear market leader. Once the apparent leader-to-be emerges, pragmatists will support that company, virtually regardless of how arrogant, unresponsive, or overpriced it is.”

Uh-oh. Are we actually losing our market leadership position because we’re careful?

It’s entirely possible. Think of it this way: If you’re growing at 50 percent a year, and your competitor is growing at 100 percent a year, it takes only eight years before your competitor is 10 times bigger than you. And when it’s 10 times bigger than you, it can buy 10 times as much advertising and do 10 times as many projects and have meetings with 10 times as many customers. And you begin to disappear.

A nice and must-read post.

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