Want to Kill Innovation at Your Company? Go Public | Hacker News Reader

Want to Kill Innovation at Your Company? Go Public

blogs.wsj.com

87 pointsDanielRibeiro18 comments

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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.

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.

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.

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.

From the article:

"An IPO didn’t affect the rate at which a company obtained patents, but Bernstein found that public companies’ subsequent patents were far lower in quality, as measured by how often each patent was cited in other patent applications."

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.

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

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.

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.

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

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...

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.

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.

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

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."

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."

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.

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.

Software patent is not innovation.

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