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The Edge of the Rut: Yahoo!

With Yahoo’s rejection of the MSFT offer, I am reminded of a line from a book by James Patterson, Cat and Mouse, which make one wonder where Yahoo! is in the planning process.  The quote is as follows:

Don’t mistake the edge of a rut for the horizon

It’s all about where you are, what you can see and what you are willing to see when planning for change.  I think YHOO may just be making the optimistic rejection offer because they believe they can reach rut escape velocity and transition into a compelling competitor in the market for years to come.    I mean what worked in the past has to work in the future, right?   Why else would you bring back the former leader –  lightning can strike twice in the same place.   I know this is sorta true, because my brother has been struck by lightening 3 times – not in the same place, but still statistically crazy – his nickname around the house is Anomaly.

I can hear the logic being leveraged around the board table on the 62% premium and the REAL value of the company. “MSFT is so wrong, we are worth like eleventy GABILLION”!   Mathematically I’m not sure how you get to a higher valuation as a standalone entity.   One would think MSFT would see significant cost relief through consolidation after a combination that made it uniquely more valuable to MSFT than as a standalone business.   I digress – this piece is about what an organization needs to do achieve escape velocity and take a business somewhere new and this is not the type of investment Yahoo is going to make or the time they have in the marketplace.  I mean Yahoo has great assets, but it’s no Cray.  (or maybe it is).  Yahoo! a current event for a  piece I’ve been thinking about for a while – achieving a corporate metamorphosis.

Change Requires Education

So is it a horizon or a rut – not really sure, but both getting out of a rut and going to a new place require  a massive organizational effort – top to bottom.   Getting out of a market or company rut requires a willingness to invest in education throughout the workforce.    This isn’t a set of slides and a 1 hour meeting via webex in a theatre offsite – it’s engaging as many people as possible to UNDERSTAND the mission and current challenges in the business.   Folks need to understand who are their competitors, why they are losing/not rocketing and what the opportunity is that is being pursued.   A core tenant is it needs to be believable as well, there is a little faith required in this kinda thing.   Essentially repositioning a technology company requires balancing the now with the new.   Folks will need different skills as well, so not only awareness and alignment – but core skills training to help in the process.  The previous mode and skills got you where you are.

Innovating is tough stuff and it requires a new view on things – not just for the leadership, but the whole organization.   The only way to do this is make sure everyone is aware of the goals, drivers and opportunity and that they have the tools and skills to add value.   When aligning to a new segment and market, leverage your tribal knowledge and a synchronized vision to drive organizational partnership and execution.   You clearly may need to new people, but you have lights to keep on and there are good ideas in the employee base which could be leveraged that an outsider just might not be able to help with for 18 months.

Partnership Is Not Just a Press Release Opportunity – It’s an Organizational Requirement

Most of time in software companies true partnerships are hard to find.   Common ideas, a comprehensive solution and a plan are just hard to get done and execute on, but these are what is needed to find the next market horizon.   Partners need to be everywhere – outside the organization and inside.

If an organization is looking to change and deliver “new things”, true partnership needs to be central in the plan and part of the culture.   When rebuilding an organization – everyone needs to be considered a trusted partner – employees, customers, resellers and OEM partners.   You will need as many evangelists as possible telling the story and pushing the new agenda from every edge of the rut as possible.

Customers are no longer margin generators – but extended members of product management who help drive innovation and adoption.   Customer number 6 is probably a margin story, but the first handful need to be your partner.   Why would you want to view the first handful differently?

Simply – traction is a good thing – it reinforces in the market and the organization the strategy is viable in a way that no ad placement or poster can.   Reference-able customers are worth 10X any traditional marketing spend to demonstrate than an organization IS something else, or at least going to be and that the asserted transformation is real.   When you partner with your customer you will quickly see new opportunities and gain insights you can’t get from social media, trade rags and spreadsheets.  The crazy things customers tell you just might make the product better – another way to look at it, is it takes a village.

An  all-in partnering approach also makes a team a little more introspective and humble.   Quickly customers can help you understand the things which aren’t done well or that you can’t do because you don’t have the capabilities.   Gaps aren’t bad things – they are opportunities for brand drafting.   Be willing to outsource/enhance capabilities with a strategic partner with a viable solution and transfer a little of their brand equity to yours.

A partner approach to delivering new solutions to market can rapidly increase brand visibility and help establish additional credibility in the NEW marketplace.   Once you have effectively balanced your partner channels and established new capabilities, you can leverage this investment in partnership to ruthlessly execute on the opportunity and plan with an extended virtual team.

Differentiated Execution

Every company is going to make mistakes when trying to reach escape velocity, but as long as effort is put forth to understand the mistakes and quickly correct, most things will work out.   You will need keep as many folks around as possible and bring new folks in to adequately fund the transformation and give it a chance.   With a common understanding, moderately larger teams, cross-functional trust and measurable deliverables just about anything can happen.   That’s right folks the sky’s the limit.

Planning like this will take far more than the 100 day‘s predicted by the not so new CEO Jerry Yang.   It’s got to be 180 days to baseline, 120 days to prioritize and another 180 to implement the first wave for a company the size of Yahoo!.   This could ultimately be a plan and restructure of $500M-1B for them to transform the business.   Seems like a crazy number, but the 1000 folks forecasted to be taken out of the business probably has a $120M annual benefit (salaries, real estate, infrastructure…) and a probable $15M spend on severance.   Only another $350-850M to go, good news is at least $200M is investment and $25M is in travel over the next 3 years (strategic planning sessions are best done at the Four Seasons in Prague).

Not sure Yahoo! has the temperament for getting as serious as they should on the restructure, the only evidence I have on this is the recent “let’s cut some costs” to establish the illusion of a plan with rightsizing announced to the market last month.   If they were really looking to drive improvement through restructuring it would have been a far more aggressive announcement to prepare for the next incarnation of the organization.   Don’t get me wrong, you can cut to innovation and improvement, but often it requires a little more effort than 5-10% of the workforce.   You don’t get that cool “Survivor Culture” with extreme execution unless you pull out 20%.    At a 20% reduction everyone is interested in staying on the island – it’s a weird Stockholm Syndrome thing coupled with a Sally field “they really, really like me” vibe all which is validated with a bi-weekly paycheck and every monthly super jumbo mortgage payment as the reoccurring milestone of continued individual success.

LOS ANGELES (Hollywood Reporter)Yahoo is widely expected to undertake significant layoffs this week and dump several underperforming businesses as the struggling portal continues to reorganize its business operations.

The Sunnyvale, Calif.-based Web giant has declined to provide specifics on the number of employees that will be let go — estimates have ranged from 5 percent to 10 percent of its work force, or hundreds of staffers.

Officials confirmed Tuesday that some segments of the company will be phased out.

“Yahoo has embarked on a multiyear transformation that includes making some tough decisions about the business to help the company grow,” Yahoo said. “Yahoo plans to invest in some areas, reduce emphasis in others and eliminate some areas of the business that don’t support the company’s priorities.”

Maybe the board’s right – they will come up with the next big idea, focus on what works and start generating mad cash in 24-36 months in opposition of the trend for the internet’s largest property. Rainbows and Unicorns – catch one if you can.

Facebook is bound to be is the LAST big new thing in the market, so I think I’m going to buy some YHOO stock.   The optimism and strategic planning which appears to be going on in the boardroom is all I need.   I mean come on – this upward stock trend has to be sustainable and rational, after all the board THINKS it’s worth more than a 62% premium. This is going to make for a great case study for some HBS student someday.  For now, it’s made for a mediocre blog post on one of the interweb’s smallest properties.