Are you the lever or the leveraged?

I thought of Gordon Bell the other day.  Gordon was the architect of many Digital Equipment Corporation computers.  In the late 80s he moved out to California to hook up with the venture capital community there.  In a magazine article not long thereafter, the writer asked him “Are you just an old hardware guy?”  To which Bell replied (I’m paraphrasing from a distant memory), “I guess I am…but you know that hardware advances are what make all software advances possible.”

That’s true, of course.  But would you rather, today, be in the hardware business of the software business?  The hardware business is paranoid competitive, requiring galactic investments and returning profits that can vanish overnight.  It’s a scary business to be in.  Yet it makes all the incredible software that we enjoy and our increased standard of living possible, to say nothing of the profits it can return.

In the information technology industry, hardware is the lever, software is what’s leveraged.  Most industries have their own version of the two.

Now, when we strategize, we are well advised to look at our business from many valid strategic paradigms: investment or cash cow (yes, this old view is still valid!), first-to-market or late follower, SWOT, life-cycle, and so on.   Another view might be whether or not we are in a business that is a lever or is leveraged.  If the former, we may want to hedge our bets by investing in some of the latter.


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