My latest article I wrote a couple of days ago:
Execution, Execution
A company comes out with a great product that the public devours with overwhelming demand. Retail investors fall in love, admiring the amazing innovation. The executive management team basks in the success of the product and forecasts exciting growth projections. After a couple of blockbuster quarters, sales begin to wane. The company pre-announces a bad quarter, but promises the future is still bright. Just wait, they say. We?ll be back on top in a few months. Another quarter passes, sales do not match up. Other "one-time" problems keep popping up. Don?t worry, things will get better. But they don?t. The story repeats itself, again and again.
We?ve all seen it before. And I?ll admit, I?ve been bitten myself multiple times. And as I look back, I realize there is one major theme in the rise and fall of these companies. It can be summed up in one word. Execution. Here are examples of companies that have failed to execute.
-3dfx Interactive (TDFX) had problems managing the Voodoo2 distribution channel, forecasting earnings & revenue, and with R&D delays & feature-set decisions (Banshee, Voodoo Rush, Voodoo 1.5, Voodoo3, etc.).
-Iomega (IOM) failed to innovate and grew complacent marketing the Zip 100 drive. The company actually didn?t release the Zip 250 for a long time in fear of cannibalizing Zip 100 sales.
-Advanced Micro Devices (AMD) is famous for coming out with solid chip designs (K6, Athlon), but never being able to manufacture their chips in volume & quality to compete with Intel.
All three companies had great products, but for one reason or another, couldn?t execute consistently.
Examples of quality executors are Intel (INTC), Home Depot (HD), and Cisco (CSCO). These companies, time and time again, have shown an amazing ability to consistently grow their earnings and manage Wall Street?s expectations. Wall Streets love consistency in revenue and earnings growth, and these companies deliver.
Although all have had strong locks on their market, they have never grown complacent. They have always come out with new cutting-edge products & services, forever paranoid of the competition. Andy Grove, ex-CEO of Intel, even wrote a whole book on this paranoia.
That is why venture capitalists put so much weight on the quality of the management team. To illustrate, look how quickly Scient (SCNT) and Wit Capital (WITC) grew into billion dollar companies with their miniscule revenue numbers. Experienced investors love world-class management teams that have a proven ability to execute. We should too. |
