What Steve Jobs Would Tell Mark Zuckerberg

Mark Zuckerberg was Time magazine's Person of the Year in December, 2010.  He was given that honor because Facebook dominated the emerging social media marketplace, and social media had clearly begun changing how people do things.  Despite his young age, Mr. Zuckerberg had created a phenomenon demonstrated by the hundreds of million new Facebook users.

But things have turned pretty rough for the young Mr. Zuckerberg. 

  • Facebook was pretty much forced, legally, to go public because it had accumulated so many shareholders.  The stock hit the NASDAQ with much fanfare in May, 2012 – only to have gone pretty much straight down since.  It now trades at about 50% of IPO pricing, and is under constant pressure from analysts who say it may still be overpriced.
  • Facebook discovered perhaps 83million accounts were fake (about  9%) unleashing a torrent of discussion that perhaps the fake accounts was a much, much larger number.
  • User growth has fallen to some 35% – which is much slower than initial investors hoped.  Combined with concerns about fake accounts, there are people wondering if Facebook growth is stalling.
  • Facebook has not grown revenues commensurate with user growth, and people are screaming that despite its widespread use Facebook doesn't know how to "monetize" its base into revenues and profits.
  • Mobile use is growing much faster than laptop/PC use, and Facebook has not revealed any method to monetize its use on mobile devices – causing concerns that it has no plan to monetize all those users on smartphones and tablets and thus future revenues may decline.
  • Zynga, a major web games supplier, announced weak earnings and said its growth was slowing – which affects Facebook because people play Zinga games on Facebook.
  • GM, one of the 10 largest U.S. advertisers, publicly announced it was dropping Facebook advertising because executives believed it had insufficient return on investment. Investors now fret Facebook won't bring in major advertisers.
  • Google keeps plugging away at competitive product Google+. And while Facebook  disappointed investors with its earnings, much smaller competitor Linked-in announced revenues and earnings which exceeded expectations.  Investors now worry about competitors dicing up the market and minimalizing Facebook's future growth.

Wow, this is enough to make 50-something CEOs of low-growth, non-tech companies jump with joy at the upending of the hoody-wearing 28 year old Facebook CEO.  Zynga booted its Chief Operating Officer and has shaken up management, and not suprisingly, there are analysts now calling for Mr. Zuckerberg to step aside and install a new CEO.

Yet, Mr. Zuckerberg has been wildly successful.  Much more than almost anyone else in American business today.  He may well feel he needs no advice.  But…. what do you suppose Steve Jobs would tell him to do? 

Recall that Mr. Jobs was once the young head of Apple, only to be displaced by former Pepsi exec John Sculley — and run out of Apple.  As everyone now famously knows, after a string of Apple CEOs led the company to the brink of disaster Mr. Jobs agreed to return and completely turned around Apple making it the most successful tech company of the last decade.  Given what we've observed of Mr. Jobs career, and read in his biography, what advice might he give Mr. Zuckerberg? 

  • Don't give up your job.  Not even partly.  If you create a "shadow" or "co" CEO you'll be gone soon enough.  Lead, quit or make the Board fire you.  If you had the vision to take the company this far, why would you quit? 
  • Nothing is more important than product.  Make Facebook's the best in the world.  Nothing less will allow a tech company to survive, much less thrive.  Don't become so involved with financials and analysts that you lose sight of your #1 job, which is to make the very, very best social media product in the world.  Never stop improving and perfecting.  If your product isn't obviously superior to other solutions you haven't accomplished your #1 priority.
  • Be unique.  Make sure your products fulfill needs no one else fulfills – at least not well.  Meet unserved and underserved needs so that people talk about your product and what it does – not how much it costs.  Make sure that Facebook has devoted, diehard customers that believe your products meet their needs so well they would not consider your competition.
  • Don't ask customers what they want – give them what they need.  Understand the trends and create future scenarios so you are constantly striving to create a better future, not just improve on history.  Never look backward at what you've done, but instead always look forward at creating what noone else has ever done.  Push your staff to create solutions that meet user needs so well that you can tell customers why they need your product in ways they never before considered.  
  • Turn your product releases into a show.  Don't just run out new products willy-nilly, or on a random timeline.  Make sure you bundle products together and make a big show of each release so you can describe the upgrades, benefits and superiority of what you offer for customers.  People need to understand the trends you are meeting, and need to see the future scenario you are creating, and you have to tell them that story or they won't "get it."
  • Price for profit.  You run a business, not a hobby or not-for-profit society.  If you do the product right you shouldn't even be talking about price – so price to make ridiculous margins by industry standards.  At Apple, Next and Pixar the products were never the cheapest, but they accomplished what customers needed so well that we could price high enough to make margins that supported additional product development.  And you can't remain the best solution if you don't have enough margin to keep developing future products.
  • Don't expect products to sell themselves.  Be the #1 passionate spokesperson for the elegance and superiority of your products.  Never stop beating the drum for the unique capability and superiority of your product, in every meeting, all the time, never ending.  People like to "revert to the mean" so you have to keep telling them that isn't good enough – and you have something far superior that will greatly improve their success.
  • Never miss an opportunity to compare your products to competition and tell everyone why your products are far better.  Don't disparage the competition, but constantly reinforce that you are first, you are ahead of everyone else, you are far better — and the best is yet to come!  Competition is everywhere, and listen to the Andy Groves advice "only the paranoid survive."  You aren't satisfied with what the competition offers, and customers should not be satisfied either.  Every once in a while give people a small glimpse as to the radically different world you see in 3-5 years so they buy what you are selling in order to prepare for that future world.
  • Identify key customers that need your solution and SELL THEM.  Disney needed Pixar, so we made sure they knew it.  Identify the customers who can gain the most from doing business with you and SELL THEM.  Turn them into lead customers, obtain their testimonials and spread the word.  If GM isn't your target, who is?  Find them and sell them, then tell us all how you will build on those early accounts to eventually dominate the market – even displacing current solutions that are more popular.  If GM is your target then make the changes you need to make so you can SELL THEM.  Everyone wants to do business with a winner, so you must show you are a winner.
  • Identify 5 of your competition's biggest customers (at Google, Yahoo, Linked-in, etc.) and make them yours.  Demonstrate your solutions are superior with competitive wins.
  • Hire someone who can talk to the financial community for you – and do it incredibly well.  While you focus on future markets and solutions someone has to tell this story to the financial analysts in their lingo so they don't lose faith (and they are a sacrilegious lot who have no faith.)  Keep Facebook out of the forecasting game, but you MUST create and maintain good communication with analysts so you need someone who can tell the story not only with products and case studies but numbers.  Facebook is a disruptive innovation company, so someone has to explain why this will work.  You blew the IPO road show horribly by showing up at meetings in a hoodie – so now you need to make amends by hiring someone who will give them faith that you know what you're doing and can make it happen.

These are my ideas for what Steve Jobs would tell Mark Zuckerberg.  What are yours?  What do you think the #1 CEO of the last decade would say to the young, embattled CEO as he faces his first test under fire leading a public company?

Buy Facebook Now – Catch a lucky break!

On May 18 Facebook went public with an opening price of $38/share.  Now, after just 2 weeks, it's more like $28.  Ouch – a 25%+ drop in such a short time makes nobody happy.  Except buyers.  And if you are interested in capturing a high rate of return with little risk, this is your lucky break!

The values of publicly traded companies change, often dramatically, based upon changes in performance and investor expectations about the future.  Trying to profit off fast price changes is the world of traders – and the vast majority of them lose fortunes rather than create them.  Knowing how to ignore whipsaw events, and invest in good companies when they are out of favor is important to long-term wealth creation. 

Investors make money by understanding product markets and the companies supplying them, then investing in companies that build upon trends to create revenue growth with high rates of return over several years.  In the forgettable 1999 movie "Blast from the Past" (Brendan Fraser, Christopher Walken, Sissy Spacek) a family moves into its nuclear blast shelter in 1960 during a panic, and doesn't come out for 35 years.  Fortunately, the father had bought shares of AT&T and other companies aligned with 1960 trends, and the family discovers upon re-emergence it is quite wealthy. 

Creating investment wealth means acting like them, buying shares in companies building on trends so you can hold shares for years without much worry.

If ever there was a company aligned with trends, it is Facebook.  The company did not create 900million users in 8 years by being lucky.  Facebook is the ultimate information era company.  Facebook is not a fad – any more than television or telephones were fads in 1960.  Just like they provided fundamental new ways of acquiring and disseminating information Facebook is the newest, most efficient and effective way for connecting and communicating in 2012.

When television appeared the mass population said "why?" There was radio, which was cheap, and older users said TV reduced the use of imagination.  And television was not available many hours per day.  But it didn't take long for CBS and its brethren to prove it could attract eyeballs, and soon Proctor & Gamble started paying for programming so it could promote its soaps (remember "soap operas?") Soon other companies developed programs strictly so they could promote their products. The "Ted Mack Amateur Hour" was sponsored by Geritol, and viewers were reminded of that over and over for 30 minutes every week.  Eventually the TV ad model changed, but the lesson is clear -  when you can attract eyeballs it has value and there will be businesses creative enough to take advantage.

Now television watching is declining.  Instead, people are spending more time on the internet – including via mobile devices.  And the location attracting the most people, and by far for the most minutes per day, is Facebook.  Facebook's access to so many people, so often, creates an audience many businesses and non-profits want to tap. 

Further, in the networked world Facebook not only has eyeballs, it delivers up to those eyeballs some 9 million apps, and knows what everyone wants, where they come from and where they go next.  Beyond the industrial-era business of selling ads (like Google,) Facebook's information business has significant value for anyone trying to promote or sell a solution.  Facebook is a repository of information about people, and their behavior, never before seen, understood or developed for use.

Around the IPO, General Motors decided to drop its  Facebook advertising.  That freaked some investors.  Cries arose that social media is somehow broken, and unable to develop a business model. 

Let's keep in mind who we're talking about here – GM.  Not the most innovative, forward thinking company, to put it mildly.  GM, like a lot of other plodding, but big spending, large companies has approached social media like it is just television on the web – and would prefer to simply put up a television ad on a Facebook like link.  Whoa! That would be akin to a 1960s TV ad that was simply the text from a newspaper ad.  Nobody would read it, and it simply wouldn't work. 

Television required a new kind of communication to reach customers – and social media does as well.  TV required the ad be entertaining, with movement, product use demonstrations, and video plus audio to go with the words.  Connecting with users was harder, but the message (and connection) could be far more robust.  And that is what advertisers are being forced to learn about Facebook/Social.  It has new requirements, but once understood companies can be remarkably successful at connecting with potential customers – far more than the traditional one-way approach of historical advertising.

Paid promotion on Facebook is just the tip of the iceberg – a one-way approach to advertising sure to create short-term revenue but not terribly robust.  Beyond that, social media changes everything. Retail, for example, is fast shifting from pushing inventory to being all about understanding the customer and offering them what they need in an anticipatory way (think Amazon rather than Best Buy.)  And nowhere can you better understand customer needs than by social media participation.  By being an information company, rather than an industrial company, FB is remarkably well positioned to create growth – for everybody that figures out how to use this remarkable platform.

As Facebook's shares kept falling this week, more attention was paid to whether traditional advertisers would buy FB.  And much was made about whether the "metrics" were there to justify social media investments.  This micro-management approach clearly misses the main point.  People are already on Facebook, their numbers are growing, their uses are growing, their time on the site is growing, and the benefits of using Facebook are growing.  Trying to measure Facebook use the way you would measure a print ad – or even a Google Adword buy – is simply using the wrong tool.

When P&G first started producing television "soaps" their competition sat back and said "look at what television advertising costs, compared to print and compared to pushing products into the local stores.  What is the return for each of those television shows?  Can it be justified? I think it is smarter to keep doing what we've done while P&G throws money at ads you can't measure."  By moving beyond the historically myopic view of trying to find returns at the micro level P&G quickly became (at the time) the world's largest consumer goods company.  Early TV advertisers followed the trend, knowing their participation would create returns far in excess of doing more of the old thing. And that is the direction of social media.

There was a lot of anticipatory excitement for the Facebook IPO.  Lots of people wanted shares, and couldn't buy them in advance.  The public, and the Morgan Stanley investment bankers, clearly thought the shares would go up.  Oops.  But that's a lucky thing for investors. Especially small investors, usually unable to participate in a "hot" IPO.  Now anybody can buy FB shares at a 25% discount to the offering price – a better deal than the institutional buyers that usually get the "sweet" deal little guys never see. 

If you are an employee, short term you might be unhappy.  But if you are an investor, be happy that worries about Greece, the Euro's future, domestic politics, a lousy jobs report and simple myths like  "sell in May and go away" have been a drag on equities this month – and diminished interest in Facebook. 

Buy FB shares, then forget about them for a while.  What you care about isn't the value of FB shares in 4 days, 4 weeks or 4 months – you care about 4 years.  If you missed the chance to buy Microsoft in 1986, or Amazon in 1997, or Apple in 2000, or Google in 2004 then don't miss this one.  There will be volatility, but the trends are all in your favor.

Buy Facebook, P&G’s CEO told you to

Buy Facebook.  I don't care what the IPO price is.

Since Facebook informed us it was going public, and it's estimated IPO valuation was reported, debate has raged over whether the company could possibly be worth $75-$100B.  Almost nobody writes that Facebook is undervalued, but many question whether it is overvalued. 

If you are a trader, moving in and out of positions monthly and using options to leverage short-term price swings then this article is not for you.  But, if you are an investor, someone who holds most stock purchases for a year or longer, then Facebook's IPO may be undervalued.  The longer you can hold it, the more you'll likely make.  Buy it in your IRA if possible, then let it build you a nice nest egg.

About 85% of Facebook's nearly $4B revenues, which almost doubled in 2011, are from advertising.  So understanding advertising is critical to knowing why you want to buy, and hold, Facebook

Facebook has 28% of the on-line display ad market, but only 5% of all on-line advertising.  On-line advertising itself is generally predicted to grow at 16%/year.  But there is a tremendous case to be made that the market will grow a whole lot faster, and Facebook's share will become a whole lot larger.

At the end of January Proctor & Gamble's stock took a hit as earnings missed expectations, and the CEO projected a tough year going forward.  He announced 1,600 layoffs, many in marketing, as he admitted the ad budget was going to be "moderated" – code for cut.  While advertising had grown at 24%/year sales were only growing at 6%.  He then admitted that the "efficiency" of on-line advertising was demonstrating the ability to be much higher than traditional advertising.  In other words, he is planning to cut traditional marketing and advertising, such as coupon printing and ads in newspapers and television, and spend more on-line.

P&G spends about $10B/year on advertising.  2.5x the Facebook revenue.  Now, imagine if P&G moves 10% – or 25% – of its advertising from television (which is now a $250B market) on-line.  That is $1-$2.5B per year, from just one company!  Such a "marginal" move, by just one company, adds 1-3% to the total on-line market.  Now, magnify that across Unilever, Danon, Kimberly-Clark, Colgate, Avon, Coke, Pepsi …… the 200 or 300 largest advertisers and it becomes a REALLY BIG number.

The trend is clear.  People spend less time watching TV and reading newspapers.  We all interact with information and entertainment more and more on computers and mobile devices.  Ad declines have already killed newspapers, and television is on the precipice of following its print brethren.  The market shift toward advertising on-line will continue, and the trend is bound to accelerate. 

Last year P&G launched an on-line marketing program for Old Spice.  The CEO singled out the 1.8 billion free impressions that received on-line.  When the CEO of one of the world's largest advertisers takes note, and says he's going to move that way, you can bet everyone is going to head that direction.  Especially as they recognize the poor "efficiency" of traditional media spending.

And don't forget the thousands of small businesses that have much smaller budgets.  Most of them rarely, or never, could afford traditional media.  On-line is not only more effective, but far cheaper.  Especially as mobile devices makes local marketing even more targeted and effective.  So as big companies shift to on-line we can expect small to medium sized businesses to shift as well, and new advertisers are being created which will expand the market even further.  This trend could lead to a much faster organic market growth rate beyond 16% – perhaps 25% or even more!

Which brings us back to Facebook, which will be the primary beneficiary of this market shift. 

Facebook is rapidly catching up with Google in the referral business.  850 million users is important, because it shows the ability Facebook has to bring people on-line, keep them on-line and then refer them somewhere.  The kind of thing that made Google famous, big and valuable with search a decade ago.  In fact, people spend much more time on Facebook than they do Google.  When advertisers want to reach their audience they go where the people are (and are being referred) and that is Facebook.  Nobody else is even close. 

The good thing about having a big user base, and one that shares information, is the ability to gather data.  Just like Google kept all those billions of searches to analyze and share data, increasingly Facebook is able to do the same.  Facebook will be able to tell advertisers how people interact, how they move between pages, what keeps them on a page and what leads to buying behavior.  Facebook uses this data to help users be more effective, just like Google does to help us do great searches.  But in the future Facebook can package and sell this data to advertisers, helping  them be more effective, and they can use it for selling, and placing, ads.

Facebook usage is dominant in social media, but becoming more dominant in all internet use.  Like how Windows became the dominant platform for PC users, Facebook is well on its way to being the platform for how we use the web.  Email will be less necessary as we communicate across Facebook with those we really want to know.  Information on topics of interest will stream to us through Facebook because we select them, or our friends refer them.  Solving problems will use referrals more, and searching less.  The platform will help us be much more efficient at using the internet, and that reinforces more usage and more users.  All the while attracting more advertisers.

The big losers will be traditional media.  We may watch sports live, but increasingly we'll be unwilling to watch streaming TV as the networks trained boomers.  Companies like NBC will suffer just as newspaper giants such as Tribune Corp., New York Times and Dow Jones.  Ad agencies will have a very tough time, as ad budgets drop their placement fees will decline concomittantly.  Lavish spending on big budget ads will also decline. 

Anyone in on-line advertising is likely to be a winner initially.  Linked-in, Twitter, Pinterest and Google will all benefit from the market shift.  But the biggest winner of all will be Facebook.

What if the on-line ad market grows 25%/year (think not possible? look at how fast the smartphone and tablet markets have grown while PC sales have stagnated last 2 years as that market shifted.  And don't forget that incremental amount could easily happen just by the top 50 CPG companies moving 10% of their budget!)?   That adds $20-$25B incrementally.  If Facebook's share shifts from 5% to 10% that would add $2-2.5B to Facebook first year; more than 50%! 

Blow those numbers up just a bit more.  Say double on-line advertising and give Facebook 20% share as people drop email and traditional search for Facebook – plus mobile device use continues escalating.  Facebook revenues could double up, or more, for several years as trends obsolete newspapers, magazines, televisions, radios, PCs and traditional thoughts about advertising.

If you missed out on AT&T in the 1950s, IBM in the 1960s, Microsoft in 1980, or Apple in 2000, don't miss this one.  Forget about all those spreadsheets and short-term analyst forecasts and buy the trend.  Buy Facebook.

5 Reasons You Should NOT buy GM stock – General Motors


Summary:

  • GM is replacing its CEO and preparing to sell equity to the public
  • Don’t buy the stock.  GM will not be a market winner

GM reports $1.3 billion in Q2 profits, Preps for Stock Sale” is the Detroit News headline.  So, are you interested in buying some GM shares?  If you do, can I interest you in a bridge I have for sale???

In addition to reporting 2 consecutive positive cash flow quarters, the CEO Ed Whitacre announced he’s leaving the post to be replaced by a different telecommunications executive, Don Akerson.  Are you excited?

There are at least xx reasons NOT to buy GM shares:

  1. The company lost market share last year.  It’s slide from dominance has not stopped.  It has less than half the market share it had just 2 decades ago.
  2. GM lost $12.9 billion in the same quarter last year.  There is no doubt the company brought forward costs last year to worsen the financials, thus making them look better than they should be now.  Financial machinations are common in poorly performing companies, especially around bankruptcies
  3. The departing CEO, and the incoming CEO, are retired telecom execs.  How many successful (meaning growing revenues profitably) telecom companies do you know?  Now wait a minute…. right. 
  4. To hit revenue targets GM increased fleet sales.  Interpret that as chasing low-margin business for volume.  It also means selling on price, not the desirability of the products to end users.
  5. GMs pension funds are underfunded to the tune of some $26 billion.  When will they fulfill it? 

GM hit a growth stall in the 1970s.  Since then the company has steadily lost market share while watching profitability deteriorate to nothing.  Fewer than 7% of companies ever consistently grow a mere 2% after a stall, and there’s nothing saying GM will be in that exceptional group.

GM downsized its exciting brands.  Chevrolet is about as exciting as…..  The big “hit” car is a re-release of the Camaro – a car that was successful way about 40 years ago.  GM isn’t a leader in any new car segments, or new technologies. 

GM has no White Space.  It is run by retirees that really should go to Florida – year round.  They keep trying to do what worked for their personal careers 30 years ago – and not what will make a company succeed today.  There isn’t a single thing about GM that would make me want to own it. 

Go buy Apple.  There you get innovation, growth, new markets and a leader in several segments.