The Trouble With Yahoo

I like Yahoo. I check the website fairly regularly for news, finance, weather, local films and such. I even have one of my e-mail addresses on its domain. So you’d think I would have had a sentimental attachment to the company when I wrote my most recent book. Yet there are very few references to Yahoo in Break From the Pack.

The reason is because I find the company’s strategy to be fundamentally flawed. Under CEO Terry Semel, Yahoo has been trying to be a digital “one stop shopping” information and media center. Yet as I point out in my book, when companies try to be all things to all people, their resources get stretched thin, they lose focus in mission and capital allocation, they confuse people with too many “priorities”, they ultimately blur their brand, and most important, they find it much more difficult to dominate any sector of the markets they compete in. In fact, I argue that the most successful corporate strategies follow a variant of the “Powell Doctrine” which has been successful in the military theatre: Choose your battles very selectively, and then go in with overwhelming force. The goal, regardless of your corporate size, is domination. You can’t dominate anything if you’re trying to be great in everything. Indeed, chapter 6 is called “Dominate or Leave”, which means if you can’t realistically hope to dominate a particular market regardless of your initial size (like Whole Foods did in natural foods, Jet Blue in low price airline travel, and Google in search), then avoid it altogether, or if it's already on your books, bite the bullet and exit it even if it’s currently bringing in top line revenue.

The lead article in the November 18 Wall St. Journal describes an in-house memo by senior VP Brad Garlinghouse which apparently has become a manifesto within the company, and which vindicates my position. Yahoo may still be the most visited website in the U.S., but, as the Journal notes, it “…has suffered from slumping shares, slowing revenue growth, staff defections, and a delay in a crucial project aimed at boosting online ad sales. (Further), the company has been outmatched in key areas such as search advertising and social networking.”

So here comes Garlinghouse with his “Peanut Butter” memo. Arguing that Yahoo is spreading its resources like peanut butter on bread, thinly and evenly across all activities, Garlinghouse concludes that “thus we focus on nothing in particular.” His advice to his company: “Pick specific areas to focus on and make bigger bets on them while dropping nonessential activities.”

The Journal notes further that the memo identifies “…the absence of a focused, cohesive vision, which means (Yahoo) wants to do everything and be everything to everyone…. The result is a company that is reactive and scared to be left out (of anything).”

I read Garlinghouse’s original lengthy memo on the Web and in many spots found it to be as unfocused and uncohesive as he accuses Yahoo’s strategy of being. But once you get past the overgeneralized consultant-speak, the underlying message is worthy of consideration. That’s why the memo has resonated with many Yahoo managers. Even CEO Semel now says “We’ve got to get back to basics and again zero in on a few key priorities.”

But when you’ve already built a corporate mindset, infrastructure and personnel roster than revolves around one stop shopping, Semel’s insight is easier said than done. That’s where leadership comes in. Let’s see what happens next at Yahoo.

The Pendulum in Latin America

I just got back in time for Thanksgiving. I was in Mendoza and Buenos Aires, Argentina for a week, giving public seminars. I go to Latin America fairly regularly on business and pleasure, and I love it. Maybe it’s because I speak Spanish, maybe because the people are so gracious. I don’t know, but from the Mexico-U.S. border down to the Tierra del Fuego of Chile and Argentina-- it’s a great continent.

And it’s a continent that deserves a far higher and more stable economic status than it has had. With a few exceptions, countries in Latin America have for years suffered economic dislocations peppered with political chaos.

Many experts have attempted to explain why with detailed analysis and documentation. My own theory is simpler. I see Latin America as weighted by a metaphoric pendulum that swings wildly back and forth, left to right to left to right……

See, the right wing in Latin America (like the corporate moguls who have cozy relationships with protectionist government officials, the landowners and financiers who enjoy riches and power, etc.) is primarily concerned with hoarding and protecting wealth. The left wing (like old fashioned socialists, communists, Peronists, unionists, etc.) is primarily concerned with dividing and redistributing wealth. One wing gains power for a while, the economy goes south, and then the pendulum swings and the other wing gains power, and the economy goes south some more, and then the pendulum swings back to the first group, and so on—with the inevitable political instability that accompanies such pendulum gyrations. Right now, as seen by the examples of Venezuela, Bolivia, Nicaragua, Brazil, and Paraguay, the pendulum seems to be swinging left again.

But right or left wing yields economic stagnation, because both wings are working off a premise of established wealth. One group wants to protect it, the other to divide it. What’s missing is a wing that is primarily concerned with creating wealth. To create wealth, you need more than political democracy. You need fiscal and monetary policies that encourage growth. You need laws and institutions that honor contracts. You need accounting systems that track the flow of money honestly and accurately. You need capital access that encourages property ownership, entrepreneurship and R & D. You need an environment where it’s possible to start a business without a crushing burden of paperwork, rules, and regulatory hurdles. You need a business culture where merit and effort are more important than family ties. You need government oversight marked by a minimum of graft and corruption. You need an aggressive attack on government protectionism that currently exists with many entrenched, complacent, arrogant companies. You need leaders who champion free markets as well as free elections.

When that happens on a continent-wide, institutional basis, the pendulum will finally stabilize, and Latin America will achieve the potential is richly deserves.

The Hellacious Peril of Being a Customer

Last week my assistant had a problem with our phone system. Nothing serious, just a little glitch with a voicemail function. She had a quick technical question and, as she told me, once she received a quick answer from someone at the phone company, she could take care of the problem herself. So she called the phone company and of course was immediately thrown into the dark labyrinth of telephone hell. After several frustrating attempts to connect with a human being, and even more frustrating interminable waits while the damnable “please stay on the line, we value your call” sentence came up over and over, she hung up and confessed to me that she didn’t know what to do.

Being the wise sage that I am, I knew the answer. “When you descended into phone hell,” I said, “you obviously were presented with a menu of options.” She nodded.

“So which option did you pick?” I asked.

“First I tried ‘service’, then I tried ‘technical support.’” She said.

Now, that would be a very logical and rational step, and an honest one, but of course it would be futile. Here’s what I said: “You’re choosing the wrong option. Choose anything that sounds remotely like ‘new subscriptions’ or ‘to speak to a salesperson’.”

“But why?” she inquired. “I don’t want to speak to a salesperson.”

“Yes you do. Because if you choose ‘service’ or ‘technical support’, they know you’re already a customer, and they don’t care about existing customers; you’re already on the hook. And they don’t want to invest in after sale service, either, because that costs money and they need to maniacally build new sales to subsidize the mega-mergers that are bleeding them. So trust me. Call ‘sales’. You’ll get a response there pronto.”

And so she did. Within seconds a real human being answered, and quickly patched her to the right person, who quickly addressed her question, and that was the end of that. And the best thing was that my assistant looked upon me with awe rather than her usual disdain.

Small wonder that I have no loyalty to my current phone provider, and am seriously considering alternatives. My assistant's experience reminds me of this old joke:

A guy dies and goes up to the pearly gates. St. Peter tells him: “We’ve got a backlog of cases to process. So I’m going to give you a key to heaven and a key to hell. You visit both places, then come back and tell me where you want to go.”

So the guy first checks out heaven. Lovely. Serene. Soft music. Quiet conversations. Good books.

Then he checks out hell. Wow—beer, babes, hunks, beach volleyball, rock and roll, sexy dancing, party party party.

So the next day he goes back to St. Peter and says. “You know, heaven is nice, but kind of dull. I think I’ll go to hell.” Fine, says St. Peter, and fills out the necessary paperwork.

But when the guy reaches hell, he’s grabbed by two demons who drag him into a fiery abyss. No beer, no babes. Just a lot of moaning and screaming all around. As he’s dragged off, he yells out “What happened? Where’s all the parties? What’s going on?”

“Ah”, replies one of the demons, “you see, yesterday you were a prospect. Today you’re a customer.”

E-Mail is So Yesterday, and Other Tales of Youth

When Yahoo was in negotiation to buy Facebook for hundreds of millions of dollars, 22-year old Facebook founder Mark Zuckerberg could not confirm attendance at one important 8 a.m. conference call because he would be asleep at that hour. Another time, after spending a few hours with Yahoo people at a critical meeting, he abruptly got up to leave because he said he had to pick up his girlfriend at the airport.

Most grizzled businesspeople would conclude that Zuckerberg is a flake, a psycho, or snotty punk, but I think he, like many people his age, simply see the world differently and operate accordingly. If he’s launched a company like Facebook at just 22, he’s clearly not a bum. A colleague tells me that the hardest adjustment for his 21 year old son, who had just gotten his first full-time “adult” job writing code for a software company, was that he “had” to be at work at a designated hour. After months, he still hasn’t fully adjusted. He (and Zuckerberg) often work late into the night, so why would a company expect them to wake up early and show up for work early in the morning at the same time, every day? And if Zuckerberg is working maniacally on a 7/24 basis, why wouldn’t he want to grab the fleeting opportunity to see his incoming girlfriend for a day or two? I’m not “condoning” his behavior. But I am acknowledging that these are interesting questions.

Along these lines, I read an interesting article by Associated Press writer Martha Irvine, who began her piece with: “E-mail is so last millennium.” Turns out that “young people (18-25) see e-mail as a good way to reach an elder—a parent, teacher, or a boss.” But otherwise, they’d rather communicate via Instant Messaging (I.M.), digital chat sites, and interactive internet communities like Facebook and MySpace.

Just for the heck of it, I asked my oldest kid—all of 11 years old-- if he ever uses e-mail. “Only if I have to send an attachment,” he replied, “or when I write you.” Ouch. He confirmed that he leans towards I.M. and was both surprised and disappointed to learn that I was aware of Facebook and MySpace.

My meandering thoughts lead to one conclusion: If “elder” businesspeople are to attract the next generation of customers (and keep in mind that these 18-25 year old “kids” have more than $200 billion in spending power)-- and if they want to attract the next generation of best and brightest employees, they’d better prepare for the fact that these youths are wearing glasses with a somewhat different prescription.

The new generation of “young adults” has these characteristics:

• Diverse (one in three is not Caucasian)
• Fast-paced
• Multi-taskers
• Entertainment-driven from numerous sources, often simultaneously.
• Tech-savvy (For ancient 45 year olds, technology is a great add-on to their lives; for 20 year olds, it’s in their DNA)
• Global perspective
• Self-assured
• Accustomed to immediate feedback
• Skeptical; they have a high b.s. meter
• In business, they’re driven more by meaning and causes rather than by conformity to organizational rank and rules. In the former condition, they’re capable of prodigious work at all hours. In the latter condition, they’re capable of surprising passivity and unabashed bolting to another company.

If you’re an over- 30 geriatric and you deal with the next generational wave of adults the same way you deal with people your age or higher, you probably are doing so at your own peril.

Grotesque Thoughts on Grotesque Pay

In 1970, the ratio between CEO pay and regular-Joe pay was 28 to 1. Today, the average annual CEO pay ($10.5 million) is nearly 400 times that of the average employee’s pay ($28.5 thousand). The main reason that this ratio is disgraceful is not because of the vast disparity per se, but because so many CEOs’ performance is awful and they still make out like bandits. Few people begrudge the mega-compensation of Bill Gates and Michael Dell because those two built their companies (Microsoft and Dell) from scratch and created vast sums of wealth for so many employees and shareholders. Few people begrudge the mega-compensation of Steve Jobs and Carlos Ghosn because those two turned around their companies (Apple and Nissan) so dramatically.

The moral tragedy occurs when so many CEO’s who aren’t entrepreneurs, but themselves basically employees of the company (sometimes diplomatically called “professional managers”), wind up with millions every year even while their companies’ stock, performance, and morale sags and plummets.. Even when (or if) these poorly performing employees eventually get booted for ineptly diluting market caps and brands (like ex-CEO's David Pottruck of Schwab or Carly Fiorina of HP), they still walk away with literally tens of millions of dollars. How’s that for punishment? Or if that sticks in your craw, consider William McGuire, who was basically forced out of his CEO position because of some creative accounting irregularities, and walked away with a punishment of over $1 billion. Is there something wrong with this picture?

A recent BusinessWeek article lamented the accelerating exodus of CEO’s. In 2005, a record 1,322 CEO’s left their firms under duress. The track record of 2006 is on pace to exceed that number. BusinessWeek admits that “it’s hard to feel sorry for CEO’s when they take home at least 300 times what the average worker makes each year”.

Know what I think? These two disturbing trends—accelerating pay disparities and accelerating CEO exoduses—are becoming increasingly intertwined. In response to the growing pressures of today’s uber-competitive marketplace, many companies and investors are forgetting the concept of “patient capital”. They expect and demand fast results. CEO’s, therefore, are now demanding ever higher pay to buffer themselves from the consequences of failure and dismissal; in fact, they’re negotiating contracts that provide them with explicitly enormous sums of money in the event that they do fail. (Check out Robert Nardelli’s obscene contract at Home Depot; apart from his mind-numbing compensation while Home Depot continues to lag below expectations, some analysts who have examined his contract have suggested that he’d be even better off if he was booted out for lousy performance than if he actually succeeded).

Further, many CEO’s in this “hurry up and succeed” environment make myopic, self-serving decisions that ultimately wind up hurting rather than helping their organizations. And as I’ve shown in some of my prior articles and books, CEO’s whose primary focus is on pleasing investors and their boards are less likely to produce sustainable and sound financials than are the CEO’s whose primary focus is on pleasing customers and employees.

There are plenty of CEO’s who refuse to play the “quick fix” game, and who refuse to grotesquely fatten their pay packages regardless of the status of corporate performance and espirit d’corps. CEO’s like John Mackey and John White have founded and guided their companies (Whole Foods Markets and Public Financial Management) to steady, employee-driven, profitable growth for years and they take home annual pay that is less than 30 times that of their average front-line employee’s.

But overall, the problems still exists. And they seem to be getting worse. Jack Welch says the way to fix things t is for boards to start acting responsibly when they negotiate CEO pay packages. Okay, let’s start holding some feet to the fire.