I hate the word “innovation,” but not because of what it represents. It tends to be vastly, vastly overused to the point of the word being completely meaningless. But as a concept, a recent Stanford Graduate School of Business study by Assistant Professor Shai Bernstein found that innovation slowed down nearly 40 percent at tech companies after going public. The study, which looked at nearly 2,000 companies that stayed private and public between 1985 and 2003, also revealed that top inventors at companies tend to leave companies that go public.
I’m not sure whether this is particularly shocking or not. I feel like it makes perfect sense: When you go public, you’re under far more scrutiny and are less likely to get crazy-experimental and try out ideas or concepts. You may not even want word that those types of things are being worked on — who knows how shareholders might react to your company doing something seemingly incongruous to its roots.
It’s also kind of interesting to stare at data backing this up, even if you assumed this was true anyway. In John Jantsch’s “Referral Engine,” a fantastic book on how businesses succeed, he talks about companies needing a “higher purpose.” That doesn’t mean they need to believe in God — it means that there should be something beyond mere profits motivating a company into existing. Obviously, all companies (nonprofits aside) exist to make money. But what I and Jantsch mean is for money to be the sole primary motivator. Maybe it’s a cause, whether it’s a specific charity or it’s a specific passion you have.
An IPO is a stab at a big, big payday, so it makes sense that some of a business’ heart might go away for a while in that transition. Of course, there are plenty of companies that keep on innovatin’ after an IPO, but it’s a big big transition.
In addition to my thoughts, Quartz has a great analysis on these findings as well.
David Wolinsky is a freelance writer and a lifelong Chicagoan. In addition to currently serving as an interviewer-writer for Adult Swim, he's also a comedy-writing instructor for Second City and an adjunct professor in DePaul’s College of Computing and Digital Media. (He also co-runs a blog behind the DePaul class, DIY Game Dev.) He was the Chicago city editor for The Onion A.V. Club where he provided in-depth daily coverage of this city's bustling arts/entertainment scene for half a decade. His first career aspirations were to be a game-show host.
