Four longtime Yahoo board members, including the chairman, are leaving the company. In this one move, Yahoo is trying to make a clean break from the past — signaling that they are primed to reboot. It's a much-needed and long-overdue step on the path to shifting trajectories.
The Pattern of Failing Organizations
Larger organizations follow a fairly predictable cycle when failing. It starts with denial. The proverbial "we're so awesome and our CEO is a rockstar so we're invincible" dynamic. Typically, this lasts some period of time (years, even decades) after having a lot of success.
Resistance typically follows. Even as the organization gets some indications — data, facts, patterns — that say things are changing, they resist the need to change themselves.
At some point, they start to accept that change was needed and start to talk about it at every strategy meeting and analyst call. That was Yahoo two-three years ago. Wall Street knows they aren't serious (so did their employees, partners, customers) because they didn't change anything in practice. If people don't spend their money and time on the new, it's clear they really aren't committed to actually changing. So this stage is just about talking 'n wishing, as if they wished someone else would come along and make those tough choices for them.
Here's how that plays out in terms of stock price and earnings per share, comparing Yahoo's performance with Apple's when the situations were reversed. Last week, Apple beat the already upbeat market expectations, with record revenues of $46.3 billion and earnings of $13.87 per share. Yahoo's results were, in comparison, limp, with Q4 revenues of $1.17 billion and earnings at $.24 / share.
One skyrocketed, and one struggles.
After working with dozens of complex companies and observing hundreds more, what I've learned is that the companies that create the next big thing are the ones who go beyond talking about doing things differently; they work through the denial, resistance and inaction, and truly shift and adapt. After all of the struggle, they finally both decide that they must, and they actually do.
This appears to be where Yahoo has just arrived. A shift. Some movement in saying that what's worked in the past isn't working anymore, and it's time for a change. Bravo. Finally.
This shift could be called "feckless to fearless." Feckless is when a company doesn't know its mission, is weak in its decision-making, and thus ineffective in its output. Fearless is seen in bold moves, created by people who trust one another, and backed up by accountability. This shift is the difference between freaking out at the possibility of an imperfect bold bet and making the worst of all choices: zero bold bets. In actually bringing in new talent and letting them lead you to new edges, instead of just saying it's time for a new approach. It's deciding to stop talking about the competitive threat, and instead asking what it will take to leapfrog those competitors. It is worrying less about getting it right, and more about getting started — now.
All of this comes down to confronting fear: the fear that reminds us, "that's never been done before." The fear that says "that's not my department" or "I didn't get that email." Instead, we need to embrace fearlessness, turning people loose to create strategies, disruptive innovations, and next-gen business models. Here's what that looks like:
Makes bold (even if they are little) bets. Fearless organizations risk creating things that surprise, delight and that stand apart. They are willing to let go of nostalgia to try creating something new. They understand that the "play it safe" alternative won't be enough to create the next big things.
Become learning machines. They have the spirit of entrepreneurship (that Paul Graham has described as missing after Yahoo started to grow) — with people inventing and creating. They'd make some mistakes, and learn and do it better the next time.
Make collaboration an imperative. When an organization knows the direction (the why of the organization), everyone can connect what they do to the big picture. And that kind of alignment doesn't stop at the "walls" of an organization's perimeter but allows those organizations to be permeable in working with communities. Much like Apple has done with its app platform, or TED does with its TEDxcommunity. Clear, shared purpose makes customers more than just transactions, and team-members more than just payroll recipients.
None of this guarantees success; but it does give you the muscle to keep trying. And it's this cultural difference that is the difference between RIM, Nokia, Bank of America, Gap, HP, Groupon, Kodak and so many others — and the Apples, Amazons, and IBMs. (We may credit Netflix's desire to embolden its people and their fast responses to public failures as key acts of fearlessness and why they'll bounce back from their chaotic 2011.)
Will Yahoo turn this around? Can't tell yet. We've seen one fearless move so far. They need to make the hard decisions about investment decisions (especially around mobile), business models, and community-centered approaches.
But here's what they can look forward to if they do. It took only five years for Apple to be seen as a leader in the phone space. In that time, 75% of mobile industry's profits and 40% of its revenue was built from a business line that did not exist 5 years ago.
Yahoo, once a pioneer in online communities, needs to act less like the 800-Lb Gorilla of yesteryear, and more like a fighter in a comeback challenge — lean, resilient, and fast. And that is the lesson for all of us: when fear rules in the work culture, ideas are weak, stillborn or hidden. And crucial innovation never takes place.
This blog first appeared on Harvard Business Review on 2/8/2012.