Is Microsoft dying?
Business reporters -- like, I suspect analysts and venture capitalists -- develop over time a set of diagnostic tools for analyzing the relative health of companies we encounter. This bag of tricks is mostly subjective, some of it no doubt unconscious, and we constantly test it against experience, most of it bad. That is, every time we get suckered into writing an upbeat story about an evil, incompetent or doomed company, we swear we will never make that mistake again -- then we scrutinize where we went wrong and what warning signals we missed.
This can make us seem cynical after awhile. But let me tell you: there's nothing quite like having some pensioner or widow tell you that they lost their life savings because they based their investments on one of your articles. You will never believe a corporate pitch again.
Needless to say, these diagnostic tools vary with the company. You don't analyze a new entrepreneurial company the way you do a Fortune 500 giant. One of the tools I'm best known for is Folding Table Theory of Start-Ups. It says that when you walk into a new entrepreneurial company and you see a nice lobby and expensive office furniture, that company has its priorities screwed up -- either it is more interested in comfort than success or it is over-capitalized and lazy -- and it will never make it.
By comparison, when you see the start-up team working at folding tables or old army surplus desks, you know that it is properly focused both on getting the job done and financial discipline -- and has a good chance of being a winner. That's what I saw at the beginning of eBay (and Siebel, Tivo, Electronic Arts, Atari and a host of other great companies) and it's telling that Jeff Skoll kept that table near him during his entire tenure at the company.
The health of established firms, especially great ones, is more difficult to diagnose. The balance sheet can give some clues, but, because it captures the recent past rather than the near future, it can fool you. Most veteran reporters look at more subtle clues, like the comings and goings of key employees, slippage in the release dates of new products (or missing features), and subtle shifts in the tone of company news releases, advertisements and executive speeches.
But most of all, at least for me, there is the smell test: the faintest whiff of decay that comes from dying companies.
Sometimes this smell can surprise you. Years ago, Fortune magazine asked me to do a story about Silicon Graphics, then one of the hottest companies in Silicon Valley. In those days, SGI could do no wrong. It owned the graphic workstation market. It was working with the likes of Steven Spielberg. And its chairman, my old HP boss Ed McCracken, was being talked up for cabinet posts and ambassadorships. I fully expected to write the latest laud on the Valley's hottest young company.
But the instant I stepped on the SGI campus I knew something was wrong. The place just didn't FEEL right. Sure it was shiny and new and filled with shiny and bright employees. The products were great, and the financials were terrific. And yet, the company didn't pass the smell test. It was the little things: the chief executive officer that forgot the meeting with me (who forgets Fortune?), forcing the chairman to vamp for an hour; the much-awaited new product that arrived missing some key features; the sudden loss of some key employees.