Patient Innovators – Do public markets hamper innovation?

Absolutely. The short term focus on quarter to quarter results creates an environment where accepting the inevitable decline of the established business model is difficult. And when the reality can’t be brushed aside anymore, the ability to transition is limited by investor patience. This makes for an artificially quick – and likely poor – transition to the new model. ie. everyone is looking for the blockbuster product rather than focusing on sustainable and scalable growth. However not all public companies suffer equally, Google has had tremendous leeway in developing and growing new innovations because their primary revenue stream is so robust.

With few exceptions, I believe that the the ability to be patient and focused on the long term is a key advantage for a private company. A leg to this stool is the capital structure of the private entity. In other words, a private company building on organic growth, rather than external funding, has even more latitude to experiment. Good examples of patient innovators are companies like W.L. Gore and SAS.

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