First Click: It’s easier to make great products if your company is private

February 4th, 2016

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It’s been a busy couple of weeks for most tech companies. Whether rationalizing losses or touting profits, every publicly traded company has had to file its papers and forecast its future under the careful scrutiny of demanding investors. Many believe this quarterly cycle of stock market accountability is a good thing, serving to keep businesses hungry, focused, and financially responsible. But I look at the end product, the devices that electronics companies produce and sell, and I can’t help but wonder if it isn’t easier to build better things as a private company.

Grado is one of the world’s most widely respected headphone manufacturers. Its fantastic, handcrafted headphones adhere to traditions dating all the way back to the company’s founding in the 1950s — and its manufacturing base is still the demure Brooklyn location that was once a grocery store run by the founder’s father. The Grado family continues to own and run the business, untroubled by questions about its roadmap for future growth or shareholder demands to optimize profit margins. The audio industry is full of examples of such companies pursuing quality first and profit second: just take a look at the work of AudioQuest, who make the critically acclaimed DragonFly DAC, or Sonos, who have led the way in hi-fi wireless audio.

It’s not just small or niche companies that thrive without the yoke of investor oversight. Michael Dell took his company private in 2013, and today he can confidently claim to have the best Windows laptop in the world with the universally lauded XPS 13. Dell’s product portfolio is as strong now as it’s ever been, highlighted by design marvels like the Venue 8 7000 Android tablet. The Steve Jobs era at Apple was characterized by a similar independence in decision making — the company’s shares were traded on the stock market, but Jobs was too hard-headed to bow to its whims.

Good design and engineering require time and patience. Grado relies on techniques refined over generations. AudioQuest sets no deadlines and only releases new products when they are ready. Dell is now diving head-first into VR because it believes that’s the future of personal computing — no matter how far out it might be.

The stock market gives money, but takes away independence

The stock market isn’t a villain, as it does indeed help accelerate the expansion of many businesses, but its funding comes with significant strings attached. It puts every company on a 90-day clock, and when that timer expires, it demands new evidence of growth, both present and future. Investors looking for a return don’t care how satisfied a company’s current users are, they want to see where the next wave of customers is coming from.

And fast.

Short-term thinking leads to bad compromises. Smartphone manufacturers are now issuing multiple flagships per year just to be able to predict more growth — there must always be another big new thing on the horizon. But are we getting better products out of this rapid iterative pace? The most interesting new phones are coming from startups like Nextbit and Turing. And let’s not forget that Samsung spent years launching bad smartwatches, then hit pause for a few months to reconsider and refine, and the product was the very good Gear S2.

A company can, of course, be both a successful manufacturer of technology and a successful commercial venture. It’s just easier to strike that balance when the company is able to set its own definition of success and its own timeline for achieving it.

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