How EBITDA Killed Innovation - C24 - David Ricketts What kills innovation in companies? What makes a young, growing company stop in its tracks and stay fixed there? Often, it has something to do with EBITDA. EBITDA is a company's earnings before interest, taxes, depreciation, and amortisation – which helps to determine a company’s operating profitability. Many tech companies regularly trade innovation and long-term gains for a better EBITDA measurement or to boost their share position. But this can have disastrous long-term effects on a company’s ability to innovate.

1. How
EBITDA
killed
innovation

2. What kills innovation in companies?
What makes a young, growing company stop
in its tracks and stay fixed there?
Often, it has something to do
with
EBITDA.

3. EBITDA is a company's earnings before
interest, taxes, depreciation, and
amortisation – which helps to
determine a company’s operating
profitability.

4. Many tech companies
regularly trade innovation
and long-term gains for a
better EBITDA
measurement or to boost
their share position.
But this can have
disastrous long-term
effects on a company’s
ability to innovate.

5. The ability to think long-term and
dominate a market can often be down
to the funding structures in place
behind the company.

6. Forbes reports that VC backed companies have less focus on
EBITDA, instead choosing to focus on the ‘race for long term
market dominance’.
Yet, private equity firms who usually come in after a VC are more
conservative and risk-averse in their outlook, instead using
EBITDA as a measure to determine business performance.

7. Companies who are
focused on EBITDA due to
a pending merger,
acquisition or are having
to meet quarterly targets
to satisfy shareholders,
don’t have the room to
take risks and instead end
up stagnating, doing the
same thing with the same
resources.

8. Think about all the technologies that have
wiped out their predecessors:
Vacuum companies who haven’t invested in cordless
technology may be out of business in 2 years’ time when
the market shifts to cordless devices.
Car manufacturers who haven’t spent money on R&D for
electric vehicles may be a few years behind their
competitors and unable to compete effectively over the
next 10 years.
Read the article in full:
https://www.linkedin.com/pulse/how-ebitda-killed-innovation-david-
ricketts

9. This realisation has led a number of tech
businesses moving away from the pressure
of quarterly earnings calls and forecasts, to
concentrate on sustainably growing their
business.

10. Dell recently took the
decision to go private
while it figured out its
place in the new
competitive world of
enterprise technology
and cloud.

11. Google also recently
spun off a number of its
business segments so
that it could better focus
on each area, and be
able to invest heavily in
certain businesses
without hampering the
performance of its run-
rate search engine
business.

12. Without the room to fail
and risk money on a
project,
great things rarely
happen.https://www.linkedin.com/pulse/how-ebitda-killed-innovation-david-
ricketts

13. We often say that smaller companies are able to
innovate quickly due to their flexibility and size – making
them able to pivot and change course without tiers of
management to wade through.
But maybe that ability to innovate is less to do with the
structure, because after all, having the resources of an
IBM or Microsoft must be an enabler to innovation.
Maybe the innovation killer is actually more to do with
the fact that once a company generates a significant level
of interest or revenue, the focus on its EBITDA position
overshadows all of its other dynamic and entrepreneurial
pursuits in favour of the share price.

14. Read the article in full:
https://www.linkedin.com/pulse/
how-ebitda-killed-innovation-
david-ricketts