Consultant Ernest von Simson Discusses Successful Tech Leaders and Business Practices

Recently, Rich Tehrani, CEO of TMC (News - Alert), interviewed Ernest von Simson, a senior partner at consulting group Ostriker von Simson. von Simson sits on the board of directors at Arcsight, Levanta, and Optaros and the articles he has written have appeared in The Harvard Business Review, Fortune, and Computerworld.

Rich: What are characteristics of the most successful leaders and leadership teams?

Ernest: Beyond the obvious traits of intelligence, energy and discipline, the most important characteristic of the leader is steadfastness in pursuing the selected path occasionally over the objections of staff, pundits   and even customers. Lou Gerstner at IBM and Larry Ellison at Oracle (News - Alert) are examples. For the team, it is     expertise in their particular function and the mutual respect to listen to one another.

Rich: What are the hallmarks of successful ventures in their earliest stages?

Ernest: Typically early stage investors look for four: 1) An able management team with a knowledge of the market; 2) a product or service concept that's fresh enough to appeal to a broad new market and differentiated enough to withstand an easy attack from an established competitor in an adjacent space; 3) A technology which demonstrably works; 4) A financial plan which demonstrates a credible plan to cash breakeven and eventual profitability. The more experienced the management team, the longer the acceptable interval until expected cash breakeven. Expectations for cash breakeven are generally too optimistic.

Rich: Please explain why even a great new product or technology without a new business model is a recipe for failure.

Ernest: Even the best product or technology needs a way to monetize its value. That means a business model with a viable target market, distribution channels to reach that market, and a value proposition so customers are willing to pay enough to produce a profit. First movers in a new technology often make the fatal error of following the model of the previous generation when the new business model is equally important.

Rich: What are the challenges to changing the product mix or market position of a successful company?

Ernest: Often the problem is culturally induced myopia, overconfidence, and inertia. And the usual source of those traits is prior success. "Burn the place down," is how Steve Jobs once answered my question on how Apple could survive the success of the Mac.

Rich:  Why do you feel companies coined the “great ones” by the press so often fail within a year or two of their initial success?

Ernest: The press too often stresses a glitzy new technology which is easy to visualize and describe over notions of business model which can be more abstract and complex with many interconnections and hidden dependencies. Apple, Commodore and Radio Shack were the PC market leaders in 1979. Commodore took the outdated business model of the calculator sector with a $600 price and near zero customer support. Radio Shack assumed the uncompetitive model of the disappearing minicomputer companies with a fully integrated product line from platform to application to retailer to training and support. Both soon lost out to companies like Microsoft (News - Alert) and Compaq which understood the new layered approach to the PC business. (See below.) This is a central theme of my book.

Rich: Please detail the evolution of the computer & entire IT industry.

Ernest: Briefly, the industry has been subjected to tectonic shifts in technology and business model every ten or twelve years. Thus, 1) mainframes with fully integrated offerings. Then, 2) minicomputers with better operating systems and an astute use of indirect channels. Then 3) PCs with a layered model in which one layer offered processors, a second produced operating systems, a third data bases and   other middleware, a fourth applications, a fifth distribution. After that, 4) the Internet with many services   supplied from the Web rather than the customer's computer and now 5) the mobile Internet and software as a service or SaaS (News - Alert). Each wave has obliterated all but the top one or two incumbents from the prior wave. Obviously, there's a more complete description in "Limits of Strategy."

Rich: What is the potential future for Apple, Microsoft, Oracle, Salesforce.com and Google (News - Alert)?

Ernest: Surviving the tectonic shifts requires an ability to reinvent major parts of the business as the previous versions become commoditized. Apple has done this by moving from PCs to iPods to iPhones to iPads each with an exciting new hardware form factor and software features. And equally importantly, a new business model as the iPod provided an integrated model for buying and paying for music, iPhones did the same for applications, iPads the same for content which people were often unwilling to pay for on the PC Internet. Oracle has done the same by moving from data base to applications to appliances and probably SaaS. The issue for both is succession of the founder CEOs, a transition which has failed at other companies like Digital Equipment, Wang and most recently Sun.

Microsoft and Google have been less successful at reinventing themselves. Both are facing erosions of their traditional businesses and market share in operating systems (to Linux) and advertising. Time will tell. Salesforce.com is a ten-year old newcomer which has staked out a solid technical position in the emerging Software as a Service business. But sales and marketing costs look much too high for a truly new business model. 

Again, time will tell.