January 14, 2013 by Ken Goldstein - 4 Comments

Too Busy To Save Your Company

One of my final posts of 2012 memorialized the brands we lost last year, and inspired the question, how do so many companies so often and so badly miss the boat? It’s even more perplexing when they know where it’s docked, what time it leaves, and who the captain of that departing ship is. Seems they are just too busy to make their way to the boarding gate.

Yep, you could have found your way out, met the challenge of Creative Destruction, and banked the opportunity by reallocating resources from historic enterprises to future growth, but you didn’t. How does that keep happening?

In a recent Wall Street Journal profile, longtime media executive Strauss Zelnick, who has worked his way through several platform shifts, summarized it perfectly:

One of the problems with some of the diversified media conglomerates is you get the benefit of the cash flow of legacy assets and the burden of owning legacy assets. You own a motion-picture company and you should be thinking about what digital technology will do to your business. But when you wake up in the morning you’ve got to be on the phone with the folks in your studio, talking about a $200 million picture that’s going to cost $300 million and the star who’s not showing up at work and the marketing plan that’s going to cost you $100 million world-wide.

When someone says to you, “I think you should meet with this guy, he’s 26 years old, he graduated from MIT, he’s in Brooklyn doing a really interesting social media startup,” you say, “It does sound interesting but I’m too busy to do that.”

That happens a lot, way too often. People are so busy in their jobs, ensconced in the past, they have no time to breathe the future. Then the future becomes the present, and it’s too late.

Busy, busy, busy. But is busy the same as productive? Not quite. Sometimes, not at all. Companies intend to keep you busy. If you aren’t busy, or if you at least don’t look busy, you’re probably at risk. But do you add real value, especially in light of constant change?

How we prioritize our time says a great deal about what we value. In leadership positions, we have to manage available time carefully, our “to-do” lists are rewritten each day, week, month, and year as a series of choices. In the simplest examples, we have to decide which emails and calls to answer, which reports to read, which employees and customers to see. On a more grand scale, we have to develop a strategic plan and manage the component tactics that are meant to create value for all stakeholders in that plan.

We have an awful lot of choices to make short-term and long-term. There are things we can change and some we cannot. One thing human beings have yet to do is create more time on the clock. We think we do this by multi-tasking (or foregoing sleep, family, and fun), but we are just borrowing against a fixed asset. The choices we make about priorities have much more impact on the far-ranging output of our ventures than any hour we steal back, the memo we draft during the meeting we’ve decided we can ignore while sitting in it.

Which brings us back to the most important question—are we not only busy, but productive? Are the choices we are making that comprise that busy state truly adding value commensurate with our position and expectation? Surely meeting with every young entrepreneur or technologist who fires off a business plan would be impractical, in fact irresponsible! Think of all the wasted time given the low the hit rate for unproven initiatives. Many executives choose to delegate this kind of responsibility to a new box on the org chart—for a while it was vogue to have a Chief Innovation Officer. I was sourced on what I thought of that several times over the past few years, to which I replied, isn’t the CEO always the Chief Innovation Officer? And if she or he is, doesn’t everyone on the leader’s team, up and down the line, know immediately they are a de facto part of the solution by virtue of the reporting structure? Remember the old maxim—what my boss finds interesting, I find fascinating.

Carving out discretionary time might be the most important thing an executive can do—thinking time, learning time, creative time—and yet, where does it get prioritized? Too often somewhere between doing an expense report and tidying up your desk, after hours when you’re exhausted. What if you scheduled an hour at the beginning of each day specifically for exploratory purpose? Or if not at the beginning of the day, as a respite sometime during the day? You could block it on your calendar like an appointment with your boss, inviolable, as important as anything else you are doing. You could make it clear to those around you that you want them to help you fill that hour with introductions to out-of-the-ordinary people, invitations to exhibits, maybe just an obscure white paper on a tangential topic. Your hour could then become their hour, and the exploration could cascade. Would you catch every single opportunity that might have eluded you? Doubtful. But would you instill a culture of openness where meaningful resources were clearly dedicated to the unknown? It couldn’t hurt.

Just walking that walk, talking often about your natural curiosity, leading by example to set the tone for the mandate and institutional respect of creativity, yeah, I think that would help. There is a good deal of room between having to ingest every new idea that comes your way and fully delegating innovation to an isolated “special projects” department. Balance in leadership is critical, making good on today’s commitments while preparing for tomorrow, and it would be hard to maintain respect in an organization for a boss who neglected contractual obligations that paid the bills to wander aimlessly in dreamland.

Clearly there is no textbook approach on getting this right or fewer companies would fail, but leaders who strive to find a workable balance between maintaining focus on existing lines of business while bridging access to the unknown—even if only by maintaining an honest open-door policy—seem to have a better shot at extended shelf life. Whenever I worked for someone who did this, who asked me to bring them interesting stuff to look at that may not have mattered to everything else we were doing, that made me think harder about everything we weren’t doing to deflect the attackers quietly sneaking up on our castle. It also led to a few projects over the years I never would have conceived could make a difference in our business.

Fostering a culture of openness is much more promising than insisting on a culture of busy-ness. And there you have it, that strange root word that compels us to activity often in abstraction of thought. We need both to survive, don’t you think? If you have a moment, get back to me on that—although I will understand if your dance card is full. In fact I expect just that.

December 18, 2012 by Ken Goldstein - 10 Comments

Brands In Memoriam 2012

Frequent readers of this blog know that I am obsessed with the concept of creative destruction, the intangible but daunting market force where an invention that is vital takes out that which has become defunct, and the nascent replaces the established. For those of you just stopping by, you will find any number of mentions of creative destruction as you page through my posts on innovation—it represents for me all that is true and real in deploying creativity to survive in business, perhaps best captured in the title of Andy Grove’s definitive book, “Only The Paranoid Survive.”

As a result of creative destruction, every year we add more once significant names to the Dead Brand Graveyard. Recent memory had us bid adieu to such iconic enterprises as Palm, Saab, Lehman Brothers, Zenith, Compaq, Borders, Circuit City, Ritz Camera, CompUSA, Mervyn’s, Friendster, Tower Records, Polaroid, and Kodak. I polled my network on Facebook for suggestions to include this year and got way more than I could include in a single blog post, many of which could be argued are still on the bubble; some have already quietly jumped the shark, others are still operating as near zombie brands, not yet coming to terms with their imminent vaporization. I invite those dear friends who offered their suggestions to include them in the comments below—as well as anyone else who can see what is certain to end badly—as internal politics and stagnating ideas cause those who should know better to obscure the mandate of leadership.

Here then are my top label farewells for the current calendar year:

Continental Airlines: As a result of the merger between United and Continental, the marketing folks did the right thing and picked one brand to make it easier to find your tail logo on the runway. Was anything really lost if this was just a merger? Ask the people (like me) still stuck flying United—yeah, the customer experience did the impossible and took another plunge. If you aren’t 1K at this point in your frequent flyer status, melt down your Premier Card, there are so many top dogs in the system the rest of us matter not, kiss upgrades goodbye. Choice on routes? Funny how the routes and times keep getting de-duped. It’s ironic that an industry that flies you around in the sky at 500 mph and largely invented the modern loyalty program today can’t come up with more clever ways to achieve growth than eliminating its own competition—plus five extra inches of leg room, baggage checks, and those yummy inflight box lunches are now upsells. The parade of eliminated airline brands welcomes another, while customers fume with rising prices and deteriorating service. Hard to believe this is a path to long-term health and improved profits in a backbone industry our economy needs to thrive.

Fresh & Easy: This expansion into the USA didn’t go so well for UK grocery titan Tesco. Any ideas why? Been in one? Okay, that’s a good start. Here’s another—where was the segmentation analysis? Same prices and quality as the giant American supermarkets like Safeway, but a smaller footprint and thus fewer shelf offerings. Same footprint and attempted laid back environment as Whole Foods or Trader Joe’s, but no real upscale inventory warranting premium prices or nice people to kibitz with you at checkout. No meaningful differentiation to be found, and small parking lots, too. Ready made portions for young working professionals weren’t a home run in a market with as much choice and variety as ours. Head on competition with Wal-Mart—which can operate at scale near 3% net income while it’s strategically expanding in the grocery category—was a capital-intensive bet inclusive of acquiring real estate and building new stores, a tough play requiring far-ranging commitment and vision to warrant the pain. Without either, Tesco cut its losses and retreated.

Newsweek: This one is spiritually sad for us old school hard news and analysis junkies, except that I cannot remember when I last touched a copy of this magazine, even in a dentist’s office. Bought in 2010 from The Washington Post by audio magnate Sid Harman for $1 and assumption of the losses, ostensibly for sentimental reasons, it was then merged via IAC with The Daily Beast and put under the direction of star editor Tina Brown (there’s a cost saving measure, huh?). Circulation and ad rates for the print version of Newsweek never regained momentum sufficient to cover costs, so this year we heard announcement that the print edition is ceasing. Can Newsweek digital-only survive as a differentiated masthead next to The Daily Beast? Can you imagine a good reason to continue two separate editorial teams? Can you imagine the same editorial team producing two presumably different publications? Have you tried to sell display advertising lately for vertical online editorial products? And just what is a News-Weekly in the age of internet microsecond breaking info copy? At 79 years on the newsstands and in mailboxes, Newsweek had a good run, it just stopped evolving.

Hostess: It seems obvious to many that the sub-brands of 85-year-old Hostess will live on post the uber bankruptcy, and there will be some snack distributor out there continuing to put Twinkies, Ho-Hos, and Ding-Dongs on grocery store shelves everywhere (other than Fresh & Easy, see above). The master brand is likely to die with the corporate entity, as executive management was unable to make a deal with the labor union representing the workers who made the Twinkies, Ho-Hos, and Ding-Dongs. So 18,000 people lost their jobs because no deal could be reached between managers and workers? I don’t think that’s the whole story. Try a balance sheet too weak to support internal investment after emerging from a prior bankruptcy with private equity imposed debt and mounting unfunded pension obligations. The real culprit in my mind—you got it, thinner margins and declining market share due to lack of innovation. Hostess management—now asking for bonuses in liquidation—failed to bring relevant new products to market in a climate where obesity and diabetes became part of the vernacular. Wonder Bread may have been the greatest thing since… whatever came before it, but not in a world of seven grain all natural high fiber baked fresh daily, sliced thick and thin or not at all, your choice.

Blackberry: I am going out on a limb here, calling the magnificent former high-flier from Research in Motion dead even though launch of a new platform has been loaded into the cannons for ignition. Why do I say it’s gone with two new Blackberry’s rolling out as soon as next month? As noted in the Wall Street Journal last week, “Consulting firm IDC recently estimated that RIM’s share of the global smartphone market stands at 4.7%, down from 9.5% at this time last year and from more than 50% in 2009.” Sorry, but when a company has less than 10% of the market share it had three years ago, I am not sure how you could classify a recovery as anything more than a dangling lifeline. What went wrong? Ever try to use the Blackberry browser? There is no word in our language of which I am aware to adequately modify the word slow. With an extremely late to market touchscreen interface, where was the incentive for app developers to develop apps? Those of you who know me know my devotion to the thumb driven analog keyboard, but when I tossed it in for an iPhone 5, I knew the rest of the thumbers were coming too.

There were a number of brands suggested by my colleagues as sighted on death watch, but I’ll let those opinion makers chime in themselves and go out on their own limbs as I did with Blackberry. I have my suspicions about who might be on deck for next year’s list, but I will keep those sealed for now in a paper envelope so as not to publicly curse them or too soon embarrass myself for being wrong. Some in the soon to be gone circle I still like and am hoping for a comeback, though not many.

I think I may make this an annual feature. History would suggest I won’t have much trouble coming up with a list each year. Why chronicle the abdicated? Creative destruction is permanently embedded in our business culture, and even the greatest company can be gone in a single product cycle if customers aren’t understood to be our ultimate boss. With constraints on distribution forever less a moat and abundant technology a ceaseless path to increased consumer choice, business leadership requires nimble execution, unending responsiveness, and gracious humility to constantly win anew customer loyalty. It’s a lesson we all need front and center to do our jobs honestly and well: Innovate quickly or die.

August 27, 2012 by Ken Goldstein - 3 Comments

Don’t Fear the Fad

As an investor, can you ever know for certain if that newfangled gizmo come to market is the real deal or a fad?

Let’s try it a different way—perhaps everything is a fad, until it’s proven otherwise.

Bread, most likely not a fad. But organic fair-market nine-grain soft crust, probably a fad.

Cars, probably not a fad. But eight-cylinder 130 mph muscle mobiles with no back seats could be a fad.

AM radio, possibly a fad, but one that has enjoyed a long shelf life—and now with news and sports retransmitted over the internet to mobile devices, probably a decent bit of runway left in the broadcast machine.

Farmville, Mafia Wars, and their brethren? You tell me.

Our attention spans are surely fickle, but just because something is a fad does not necessarily make it a bad investment. I am not certain internet keyword search will last forever, but the last decade and a half have proven pretty rewarding, at least for one company that currently commands better than 70% market share. Games? That’s where they come and go in a coughing breath—if you are going to bet at that crap table, come with a lot of chips and a jug of Pepto-Bismol.

The question of whether it makes sense to bet on a fad in a commercial, accelerated, low-loyalty, short-attention-span, vastly diverse, market-driven global economy seems moot. People have bet against railroads, phones, airlines, television, personal computers, and even guitar bands as fads—and that was before they had customers! Even after these “fads” had momentum, there were endless naysayers who said they were on their way out as fast as they’d found their way in. With that kind of outlook, eventually you have to be right, but you may be staring up at daisy roots when you finally win your bet.

There is tremendous Monday morning quarterbacking now about the dive in Web 2.0 companies, from Facebook to Zynga to Groupon to Pandora. Maybe they are all fads, but let’s separate the fad of stock market performance from the fad of consumer adoption as two separate issues. The shine may be off the stock, or the shine may be off the company’s products, but those are very different things. High-growth speculative stocks like these are most often valued on future earnings potential, not current performance, so if the stock is out of favor, that does not de facto mean the product or service has gone out of favor. Plenty of people are enjoying these consumables at the moment, though it is safe to say that they won’t all be in vogue for eternity. Styles change, tastes change, brand loyalties change. We know that to be Creative Destruction, an ever-present cycle, so when we criticize either an equity or a product as being a fad, let’s be careful to make the distinction, and even more careful not to level broad sweeping judgment that could lead to missed opportunity.

Can a company make money riding the wave of a fad? Seems to me that is more norm than anomaly. Can an investor make money owning the stock of a company that rides the wave of a fad without volatile exposure to market timing? Again this seems perfectly reasonable, depending on the window. Think Intel with micro-processing chips during the PC revolution, Electronic Arts with the rise of sports-based video games led by Madden NFL, and today’s True King of All Media, Apple. Equity markets in the long run reward smart risk and punish reckless risk, just as commercial markets reward desirable consumer offerings and reject cynical ones. There has to be risk for there to be reward or no one would invest, so the question is not whether something is a fad, but whether that fad represents some potential form of continuity recognized by visionary management as one in a string of ventures that together comprise opportunity.

Intel’s legendary former CEO Andy Grove clearly taught us, “Only the Paranoid Survive.” He knew at any strategic inflection point the difference between a fad and a trend was largely the expanse of the product life cycle. More importantly, he worried about management culture as the path to product culture, where innovation means never-ending creativity, not tossing the dice and getting lucky on a good roll. I don’t worry whether a company is profiting from a fad, I expect companies to be opportunistic. I worry whether the company is a one-trick pony, whether it has created a learning culture where success and failure are both studied. A company that has learned to learn, that can read data and understand how fads are perpetuated as trends that constitute periodically sustained disruptions—that is a company that can extract true shareholder value from a fad, foremost by surprising and delighting customers repeatedly with that which they never expected was possible.

I have a lot of criticism about this year’s poor performing new entries in the NASDAQ, but that criticism has nothing to do with whether those companies were beneficiaries of identified fads now assessed by pundits to be in decline. My own career has been the beneficiary of any number of fads that came and went—computer games that sold millions and now barely qualify as second round questions on Jeopardy, once immensely cool websites that scored millions of visits that no longer can be found, virtual communities that ranked with the best in loyalty and now would be lucky to make the card draw on Trivial Pursuit. Does that mean they weren’t good businesses that added significant value to their owners? To the contrary, in their useful lives they added exceptional shareholder value in earnings and lifetime contribution. We worked the brand promises as long as we could, but when their time was done, we moved on.

That’s why a sweeping statement like “don’t invest in fads” makes little sense, because if virtually everything is a fad with varying sustainability, there is no choice but to invest in fads. What I worry about is management vision, how the brand stewards of a company are migrating from one fad to the next, how maneuvering through Creative Destruction is an art and science unto itself. Edison did it over a very long period of time. So did Steve Jobs. The folks who run television networks have to do it, because no show lasts forever and formats are cyclical; yesterday’s Variety Shows are today’s Reality Shows, half-hour comedy goes in and out of style, so does one-hour drama. Walt Disney famously bet the ranch on 2D feature animation, clearly a fad, although one he created and that lasted more than 50 years—but that wasn’t the only trick he had in the magic shop, not even close. To invest wisely in the likelihood that originators can capitalize on a string of fads through creativity and experimentation is very different from investing in one hot rocket that goes straight up with full knowledge that gravity will send it back down with equal and opposite thrust.

As the contemplative George Harrison reminds us, All Things Must Pass. That doesn’t mean windows of opportunity aren’t always in abundance. Watch the fad-makers, not the fads themselves, and the game changes significantly. While even the best fad-makers can’t call winners forever, those longer windows leave plenty of room for upside, especially when you bet the full spectrum of an index rather than trying to call the hits in isolation. If you bet on a one-trick pony and lose your bait, that was most likely your mistake, not that you bet on a fad.

July 23, 2012 by Ken Goldstein - 2 Comments

Built to Launch?

I aspire in this post to be among the elite—one of the few business bloggers on the planet currently not commenting on Marissa Mayer becoming CEO of Yahoo. I have never met Marissa, but her reputation speaks strongly for her. I wish her well because I always want good people to succeed, and in this case I also want to see Yahoo succeed. I hope she reads my article about Yahoo from last year that predated her last two predecessors and figures out a way to restore much-needed competition to the landscape of search. Hmm, seems I’m writing about her. Okay, enough said. Got get ’em, Yahoo! Stop.

Now my real topic for the week—not surprisingly, also about succession.

Venture investors Marc Andreessen and Ben Horowitz have been steadfast in their support for keeping Founder/CEOs at the helm of the companies they back, from early blog posts on their site that state their philosophy to more recent comments in the Wall Street Journal that reinforce their sometimes contrarian assertions. Not only do they believe most deeply in the Founder/CEO success model, they have championed multiple class shares that keep CEOs in authority with majority control even without majority ownership. Their point of view is clear, consistent, and well-argued—and thus far their financial returns in aggregate have been extraordinary. They want vision, they want independence and long-term creative thinking, and they want continuity.

I am not sure I have an absolute opinion yet on absolute power for a start-up CEO; we’ll have to see how those play out over the next ten or twenty years. I do worry that without senior team loyalty and continuity, it may not matter whether a CEO stays or goes. Teamwork is what matters in today’s intellectual property centric companies, and if your team is not stable, I wonder if your company can remain so. Surely new blood is a great infusion when parsed appropriately, but it needs to be in balance, at equilibrium with a set of players we can count on.

What about the top-tier executives, perhaps a level down, who seem to jump freely from ship to ship, following their own personal muses, particularly after liquidity gives them the ability to set themselves free? Is this good for companies and long-term shareholder value, for companies with massive capitalization that are taking on investment—public or private—ostensibly with some hope of being Built to Last?

Clearly within our pressured and fragile economy, the bonding relationships between employers and employees have become increasingly tenuous. “At-will employment” is not just boilerplate in an offer letter, it means what it says, that jobs are temporal. Employees not under contract may depart a gig when they wish without much obligation, and employers may equally freely dismiss them (to the extent those decisions are not discriminatory) without much warning or explanation. Companies are predisposed to protect earnings and cost-cutting can be a tactic to achieve those goals, the favor of which gives employees good reason to always be in the market. Although there are any number of topics I can extract from that thread and will do so in the future, that is not my key focus here. This is not about everyday turnover and the anxiety it creates, it is about senior level turnover as a litmus test for investors.

Reality is, a lot of high-profile employees in high-profile start-ups seem to jump ship early these days. I am not so sure that they are cashing in as much as their attention spans or personal desires lead them from one thing to the next. Some examples:

• Two of Twitter’s co-founders who served as CEO left the job and their day-to-day roles, although one returned, not as CEO, but as head of product. The third co-Founder also left day-to-day responsibilities.

• Facebook’s most recent CTO, who joined the company in 2008, departed voluntarily almost immediately following the IPO. Facebook also lost an extremely high-profile CFO in 2009, and a number of other prominent C-level executives have churned through in the years leading up to the IPO.

• Groupon’s former COO, a Silicon Valley veteran brought in to steady the ship, spent about a year on the job day-to-day before moving to an advisory role.

• Yahoo continues to make headlines with five CEOs in five years, although the situation here is different. The last one to leave on his own timeline was media veteran Terry Semel, who preceded the five. Perhaps more curious at Yahoo is the level below CEO, where the turnover has been even more active, voluntary or otherwise.

• Google is now being celebrated as iCEO University, for which it has reason to be proud with strong executives like Sheryl Sandberg, Tim Armstrong, Dick Costolo, and now Marissa Mayer all willingly accepting significant challenges. My sense is this is sustainable as long as founders Larry Page and Sergey Brin stay on the job (guided by the advice of Eric Schmidt), but at some point the spinning off of entrepreneurs may take a toll as it did at once great legendary giants like Sun and Silicon Graphics (also keep an eye on HP).

It is hard to fault someone with talent and wealth for leaving a position with an “old company” to tackle a brand new start-up concept. They have the creativity, they have the yearning, and they can absorb the personal risk. Yet these aren’t exactly old, mature companies they are leaving, even in internet time. If talent retention is critical to continuity and leadership is demonstrated by example, what does it say about loyalty to the “rank and file” millionaires of Silicon Valley hungry to pursue their dreams when so many of the top dogs or near top dogs are endemically antsy?

Can you build a company that is Built to Last when many of your brightest employees—especially those made wealthy with capital they can reinvest—are thinking Built to Jump? Should shareholders in emerging high-valuation private and public companies be concerned with the New World of high turnover that is largely viewed as the way things are? There is already risk enough in holding stakes at the high valuations these companies will need to grow into, but if these are essentially knowledge-based companies where the key assets go home to their families each night, how much should owners worry whether they come back tomorrow or start a new company that’s more fun? Are these companies Built to Last or Built to Launch—launch themselves to early prominence, and launch the careers of the stars who emerge from their ranks?

Retention and the war for talent are surely talked about a lot, but I wonder if these are just buzzwords now, if key stakeholders really are losing sleep over the next spun-off employee or just prepared to roll with the punches. For anyone who has ever led a company, the notion of culture is no small issue, and companies where the culture is strong have a heritage of continuity that gives them a shot at longevity. Do we now assume Creative Destruction is such a powerful force that short-lived companies are a norm, regardless of culture and continuity? I wonder, and look forward to checking the Fortune 500 again for a few more decades to see how this plays out—not to mention the long-term trend on aggregate net job creation we so desperately need for our economy to go the distance.

I am not suggesting that employees should stay past their welcome or interest level, and in no way would I ever want (or tolerate as a manager) any form of stagnation in the form of tenure-based retention or retention for continuity’s sake. The case I am trying to make is for a tiny bit of balance in an Old World concept known as loyalty—which has been very good to me on both sides of the desk for most of my years on the job. It has been said that in today’s world loyalty is between individuals, not within companies, and there is every reason to understand how that has come to be. Yet if companies are not loyal to employees and employees are not loyal to companies, can these kind of companies really be long-term investments for shareholders? Said another way, if the system and talent are not demonstrating loyalty and commitment, should investors?