Toyota Way or Sand Hill Road – what's the best path for a software business?

I’m reading "The Toyota Way" by Jeffrey K. Liker at the moment. Although it’s nominally about the car company, I’ve yet to find anything I disagree with and that can’t be applied to running a software company. One salient point is Toyota’s long term philosophy. They make decisions based not on short-term financial benefits, but on what is the long term right thing to do. Financial success is a by-product of long-term thinking, not a goal in itself.

The Toyota attitude appeals to me, and is the antithesis of much high profile conventional wisdom in the software industry. Recently, I’ve seen behaviour close to a parody of the standard practice. These may be isolated anecdotes, symptoms of a wider trend, or simply signs of provincial Cambridge catching up with the US West Coast: I don’t know. Recently I’ve stumbled across a few people whose business model isn’t to build something sustainable that provides customers with something they need, but rather to rapidly construct something for a quick sale, preferably to Google. Never mind that their product will never satisfy a single customer nor make a single dollar. That it glints enough to attract Google’s eye is all that matters.

I find this model hollow and, well, slightly distasteful. Companies judge their success by how much money they raise in various rounds of angel and investor funding, and then by how much their fledgling companies are bought for. CEOs stand up and boast about how much cash they have raised – and subsequently hosed – rather than the value they have created, the customers they have satisfied or how they have made the world a better place.

A lot of of money changes hands, and some people get very rich, but not much value, or wealth, is created. Most acquisitions subsequently fail, so all that has happened is that money has been transferred from the many (the shareholders of the acquiring companies) to the few (the original investors). This redistribution of money from the poor to the rich is not the same as creating wealth. The hungry give their portions of pie to the sated, but the pie does not get bigger.

To me, this smells like a Ponzi scheme. But I find it hard to reconcile my instincts (prejudices, arguably) with the success of the model over the past 40 years. Maybe this is because there are still some people – entrepreneurs, companies and investors alike – who take the long term view. Maybe this long term view is historically what has worked, but now people are trying to copy its form but ignoring the substance and ending up with a shallow caricature. Maybe I’m criticising this shallow layer of media-friendly froth while there is still a solid, bedrock of substance. Or maybe I’m just wrong and – although it jars with my instincts – this is the better route.

Faced with the two paths, I’d choose Toyota Way over Sand Hill Road any day. What about you?