Tuesday, November 29, 2016

Losing the Signal

You've created a company that has taken the world by Storm®. You're the envy of the industry, having become a paper billionaire thanks to your founders shares. But then it all comes crashing down. A series of catastrophic events ensues, and at the end your product has become a laughing stock. Losing the Signal is the brilliant inside story of the spectacular rise and fall of Blackberry.

The first third of the book is pretty standard as far as business books go. You get the obligatory bios of the two main characters who shared the CEO role of the company during its most important years. But the rest of the book is outstanding. I don't know how the authors got all these insiders to open up about all the stuff that went on behind closed doors, but it is amazing.

Crisis after crisis seemed to hit this company, from patent lawsuit losses to data outages to the eventual threat that pulled the company back down to earth: competition. The reader gets to see why the company chose the strategies it did, where the co-CEO's disagreed, and what eventually led to the deterioration of their friendship and working relationship.

I followed this company as a shareholder, and I would have loved to have this info at the time. I probably would not have invested had I known how unethical Jim Balsillie appears to me now. This is a guy who signed exclusive agreements with customers, but who turned around and sold product to his customer's competitors with absolutely no remorse. He signed on partners with promises to build a product for them, only to string them along, as his real intention was only to ensure they would not build a competing product. Even an organization like the NHL that puts green above all else turned him and his deep pockets away because they didn't trust him.

It also surprised me that RIM was not an overnight success; Lazaradis toiled for years in obscurity scraping by a living by making modems and other related hardware for other companies with a small group on a single shop floor. But he grew frustrated that his customers weren't making great devices, so he wanted to make one himself. His key insight was that the device had to be simple, so that it was easy for a consumer to use, would last all day on existing battery technology, and would be cheap enough that it was accessible. He did this by focusing the device on one thing but doing it well: e-mail.

Ironically, it would be this attachment to these principles that prevented the company from adapting to its competitors. Lazaridis could not see how consumers would be interested in a more complicated device that does all things for all people and dies before the day is done; after all, he had succeeded amidst a slew of competitors by doing the *exact opposite*. It didn't help that carriers hated RIM; Balsillie's poor treatment of the carriers when RIM had all the power made it so that the carriers wanted someone else to succeed, and so they granted Apple privileges that RIM had not been allowed.

From an investor's point of view, it was also interesting how RIM passed up a bunch of opportunities to create a moat around their business. Hardware is not where it's at: "In the long run, everything's a toaster." But RIM could have used it's dominant market share to create software moats. Other handset manufacturers were behind when it came to providing e-mail to their consumers, so they wanted to use RIM's software infrastructure. RIM did not want to hurt their handset sales and so they passed on this opportunity. Similarly, RIM's BBM would today likely be the world's dominant messaging platform, but again the company decided to avoid hurting hardware sales so it did not launch on other platforms until it was too late. WhatsApp sold a few years ago for a price that is many times what Blackberry trades for today.

I highly recommend Losing the Signal to anyone interested in business.

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