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Successful companies usually have a way of doing things. We certainly did when I was at Maxim Integrated Products. Jack Gifford, our CEO, called it “The Maxim way.”
And our way was unbelievably successful. Every year, like a clock, revenue and profits grew at 40 percent per year. The company grew to $2 billion/year in revenue with close to 40% net margins. It was literally a cash machine.
But, and this is a big but, as we grew, our thinking became more entrenched too.
It’s natural and normal for a big, successful company to take less risk as it grows. Your startup can take advantage of this.
For example, we had a product evaluation process at Maxim that we called RODT (Return on Design Time). The idea was that design engineers were the most precious resource in the company, so you should optimize your new product choices for the best RODT.
On paper this was a great idea. In fact, it was such a great idea that I used this same basic process, with some tweaks, when I started my company. However, the system could be gamed. Let me explain.
The simple equation for RODT was the Return (the profitability over the lifetime of the product) divided by Design Time. So, you could game the system by increasing the number of years a product would have revenue for.
This increases the numerator. Then, to further tweak the equation, you just reduce the man months of design time to reduce the denominator.
In fact, the RODT selection process led naturally to risk aversion. Projects that had short design times would naturally score better than riskier projects with longer design times.
So instead of taking some calculated risks with product choices, the exact opposite happened. We took less and less risk.
Why was this?
I believe the reason we took less risk was, when you’re already an uber-successful company, there was no perceived need to take any risk. You could just stay in your lane, keep your job, and watch the money roll in.
