by Adam Hartung | Feb 9, 2011 | Current Affairs, Defend & Extend, In the Swamp, In the Whirlpool, Leadership, Lock-in, Weblogs
Summary:
- Start-ups that flourish give themselves permission to do whatever is necessary to succeed
- Most acquisitions kill that kind of permssion, forcing the acquired company to adopt the acquirers legacy
- AOL’s legacy business has been dying for several years
- AOL’s history of acquisitions has been horrible, because it doesn’t learn from the acquisitions.
- AOL’s acquisition, and announced integration, of Huffington Post will likely do nothing to turn around AOL, and probably leave HuffPo about as well off as AOL’s acquisition of Bebo
After the Super Bowl Sunday Night AOL announced it’s acquisition of The Huffington Post for $350M. Given that you can’t give away a newspaper company these days, the acquisition shows there is still value in “news” if you understand the right way to deliver it. HuffPo’s team of bloggers has shown that it’s possible to build a profitable news organization today – if you do it right. Something the folks at Tribune Corporation still don’t understand.
BusinessInsider.com headlined “AOL’s Huffington Post Acquisition Makes Sense for Both Sides.” For Arianna Huffington and her investors the big cash payout shows a clear win. They are receiving a pretty penny for their start-up. Beyond them, it’s less clear. AOL’s been losing subscribers, and site vistors for years. They’ve made a number of acquisitions to spark up interest including blogs Engadget, Joystiq, ad network Tacoda and social networking site Bebo. None of those have flourished – in fact the opposite has happened. AOL investors lost almost all the $850M spent on Bebo as Facebook crushed it. So far, the AOL track record has been horrible!
AOL clearly hopes HuffPo will bring it new visitors – but whether that works, and whether HuffPo continues growing, is now an open question. MediaPost.com reports “AOL Starts Mapping Plans for Huffington Post.” Unfortunately, it sounds much more as if AOL is trying to integrate HuffPo into its traditional organization – which will most likely do for HuffPo what integrating at News Corp did for MySpace – namely, layering it with “professional management,” additional systems, more overhead and rules for operating. Or, in other words, bury it in company legacy that strangles its abilitiy to innovate and shift with rapidly emerging market needs. The company that’s actually growing, winning in the marketplace, isn’t AOL. It’s HuffPo. If there’s any “integrating” needed it should be figuring out how to push AOL into HuffPo – not vice-versa.
As the New York Times headlined, this acquisition is “AOL’s Bet on Another Makeover.” And that’s what’s wrong. The acquisitions AOL made were pre-purchase successful because they were White Space endeavors that had close connection to the market. The founders gave their organization permission to do whatever it took to be successful, without artificial constraints based upon legacy. Their acquisitions have not used by AOL to create White Space with better market receptors – to teach AOL where growth lies. Rather, AOL has hoped they can use the acquisition to defend and extend their old success formula. AOL has hoped the acquisitions would allow them to slow the market shift, and preserve legacy operations.
As we’ve seen, that simply does not work. Markets shift for good reason, and the only way a business can thrive is to shift with them. At AOL the smart move would be to let Arianna run the show! A few months ago AOL purchased TechCrunch and ever since Michael Arrington, the founder, has been villifying AOL management for its bureaucracy and inability to adapt. What Mr. Armstrong, the relatively new CEO at AOL misses is that AOL’s business is dead. AOL needs to find an entirely new way of operating – and that’s what these acquisitions bring. AOL needs to get out of the way, let the acquisitions flourish, and learn something from them. AOL management needs to accept that the old AOL business model is rubbish, and what it must do is allow the acquisitions to operate in White Space, then learn from them! But that’s not been the history of AOL’s purchases, and doesn’t look like the case this time.
Mr. Armstrong could learn a lot from Sir Richard Branson. Virgin has made many acquisitions, and developed several new companies. He doesn’t try to integrate them, or drive them toward any particular business model From Virgin Airways to Virgin Money to Virgin Health Bank to Virgin Games (and all the other businesses) the requirement is that the business be tightly linked to market needs, operate in new ways and find out how to grow profitably. Virgin moves toward the new markets and businesses, it doesn’t expect the businesses to conform to the Virgin model.
I’d like to think AOL could learn from HuffPo and dramatically change. But from the announcements this week, it doesn’t look likely. AOL still looks like a management team desperately trying to save its old business, but without a clue how to do so. Too bad for AOL. Could be even worse for those who read HuffPo.
by Adam Hartung | Sep 23, 2010 | Current Affairs, In the Rapids, Leadership, Openness, Travel
Summary:
- Most people misunderstand the way toward building a valuable company
- Richard Branson has developed massive wealth by finding and entering growth markets
- Success comes from developing new solutions that fulfill unmet needs – not maximizing performance of core capabilities
- Virgin is now moving into luxury hotels, a market being ignored by most investors, with new products that fit still unmet needs
Very few people are as wealthy as Richard Branson. But few people can manage like he does.
Branson started out selling records via mail-order in Britain. Over the years he got into retailing, international airlines, domestic airlines, mobile telephony, international lending (amongst other businesses) – and now his company is investing $500milion in hotels and hotel management. According to Bloomberg.com “Branson’s Virgin Group to Invest $500million in Hotels.”
Despite all we hear about how impossible it is to be an entrepreneur in Europe, Sir Branson has done quite well, building a wildly successful, profitable company. Although he didn’t follow conventional wisdom. Instead of “sticking to his core” Sir Branson has built a company that invests in opportunities which are highly profitable – regardless of the industry or market. He doesn’t grow by doing more of the same better, faster or cheaper. Instead, he takes advantage of shifting markets – getting into businesses with opportunities and exiting those that don’t earn high rates of return.
During last decade’s building boom there were a lot of high-end hotels built. Now, with the economy not growing, excess capacity has made it difficult for these to cover the mortgage. Bankers don’t want to refinance – they want out of the buildings. Occupancy has been so low that many traditional name brands, such as Ritz Carlton or Intercontinental, have been forced to abandon properties. As a result, several hotels have closed, and the property offered for sale at a fraction of original construction cost. With most investors shying away from all things real estate, prices have plummeted. Some hotels, nearly new, have sold for the value of underlying land.
And now Virgin enters the market. Although Virgin has no background in real estate or hotel management, it is clear that there is demand for luxury goods and luxury travel — if someone can make it attractive and affordable. By purchasing premier properties at a fraction (literally 10-25% of their initial cost) Virgin will be able to offer hotel guests a superior experience at an attractive price! Management sees an unmet need by high-income, well educated “creative class” customers. By getting into the market Virgin will learn, just as it did in airlines, how to meet customer expectations in a way that allows for highly profitable delivery when meeting a currently unmet need.
While some would say that if the current competitors, steeped in experience and tradition, can’t succeed Virgin should not think it can. But a Virgin executive rightly says “If you look at Virgin’s history, we have come into markets with big powerful players, where customers are generally satisfied but not in love, and we have been able to cut through that.” Well said. Virgin doesn’t do what competitors do – it develops a solution that locks competitors into their position while positioning Virgin to meet the untapped market.
Even though this opportunity is available to everyone, almost no companies are interested in buying these undervalued hotels. “It’s not our business.” “We don’t know how to operate hotels.” “We don’t invest in real estate.” “I’m too busy taking care of my current business to consider something new.” “What if we’re wrong?” These are all things people say to stop themselves from taking action to enter new opportunities with high rates of return. The magic of Virgin is its willingness to overcome Lock-in to its existing business, look for market opportunities, and then (as Nike advertises) Do It!
by Adam Hartung | Sep 19, 2010 | In the Rapids, Leadership, Openness
Summary:
- Richard Branson has built a wildly successful Virgin company on very unconventional “secrets to success”
- Most business leaders follow management theory than is built on myth
- Virgin has been wildly successful, even over the last decade when many companies have suffered, by being agile and market oriented
- It’s time to throw out traditional management, and its myths, for a different approach.
In my speaking and blogging I regularly comment on what great results have been achieved Virgin under Chairman/CEO Richard Branson. The founder, and the company, both started quite humbly. Even though nobody can easily define exactly what business Virgin is in, it has done very well. So I was pleased to read at BNet.com “Richard Branson: Five Secrets to Business Success“:
- Enjoy what you are doing. Really.
- Create something that stands out
- Create something of which you and your employees are proud
- Be a good leader – which he defines as listen a lot, ask questions, heap the praise. Don’t fire people, help them to be happy
- Be visible. Get out into the market and listen, listen, listen.
I am struck at how this is nothing like the recommendations in most management books. Let’s see what Richard Branson didn’t say:
- Sacrifice. Work hard. Be diligent. Be tough. Cut out anything unnecessary
- Find one thing to be good at and excel – search for excellence
- Know your core competency, and maximize it’s use. Avoid things that aren’t “core”
- Make sure everyone is “on the bus” doing the one thing you want to do. Get rid of anyone else
- EXECUTE! Optimize your business model. Focus on execution
- Cut costs. Run a tight ship. Tighten your belt.
- Focus on results. Run the business by the numbers
- Focus on quality – implement Six Sigma and/or TQM and/or LEAN processes
- Outsource anything you don’t absolutely have to do
- Hire the “right” leaders (or employees)
Business if full of myth. And we now know that many gurus have been recommending actions for years that simply haven’t produce long-term positive results. The companies considered “great” by Jim Collins have fared far more poorly than average. Most of the companies Tom Peters considered “excellent” have not made it to 2010 in good shape – if they even survived! Most of the 10 myths were things that simply sounded good. They appeal to the American way of training. But they haven’t helped those companies which applied these ideas succeed.
Sir Richard Branson has created businesses from selling recordings to bridal shops, international banking, traditional airlines and even a business flying people into outer space. By all the traditional recommendations, he and his company should have failed. It followed none of the recommendations for hiring, firing, focus or execution. Yet he has created billions in personal fortune, billions for investors and given thousand of people very rewarding places to work. By all counts, he and Virgin have been a success.
It’s time to give up our management myths, and learn to compete in today’s rapidly shifting market. It’s now more about listening to the market and managing an agile organization than “focusing on core” or “execution.”
by Adam Hartung | Aug 10, 2010 | Current Affairs, Food and Drink, In the Rapids, In the Swamp, Leadership, Lock-in
Nearly 20 years ago the Clinton campaign inspired itself with the mantra “It’s the Economy, Stupid.” Their goal was to remind everyone that the economy was critical to the health of a nation, and the economy hadn’t been doing so well. Now we could retread that for business leaders “It’s About Growth, Stupid.” For some reason, all too many seem to have gotten caught up in downsizings and cost cutting, forgetting that without growth there’s no way to have a healthy business!
I’ve long been a detractor of Sara Lee. As the company undergoes a change in leadership, the Chicago Tribune headlines “Nobody Doesn’t Like Sara Who?” Under CEO Brenda Barnes, Sara Lee sold off business after business. Now the company is so marginalized that it’s an open question if it will remain independent. For years the leaders said asset sales were to help the company “focus.” Only “focus” made the company smaller, without any growth businesses. Why would an investor want to own this? Why would a manager want to work there?
Had the asset sales been invested in growth, perhaps a positive outcome would have developed. But Sara Lee was like most companies, as that rarely happens. Had the money been paid out to investors perhaps they could have invested those gains in other growth businesses. But instead the money went into the company, where it propped up no-growth businesses. Leaving Sara Lee a smaller, no growth, low profit business. This leadership has not benefited investors, employees, customers or suppliers.
Likewise, draconian cost cutting does more harm than good. The National Public Radio headline reads “Extreme Downsizing May Hurt Companies Later.” Using deep cuts at Alcoa as an example, Wayne Crascia, professor at University of Colorado, points out that it’s unlikely Alcoa has really “prepared itself for future growth.” Instead, cost cutting often eliminates the ability to compete effectively, by cutting into R&D, marketing and sales in ways that are impossible to rebuild quickly or effectively. By trying to save the old Success Formula with cuts, rather than growth initiatives, the leadership hurts the company’s long term viability. Sort of like repeated vomiting by anorexia sufferers leaves them skinnier – but in far worse health. Even though Alcoa still boasts 60,000 employees it’s very likely the company has permanently Locked-in its old Success Formula leaving itself unable to emerge as a stronger company aligned with new market needs.
Yet, while so many company leaders are trying to “retrench to success” it’s clear that growth still abounds for the companies that understand how to create value. BrandChannel.com headlines “The Elastic Brand: Virgin Expands in Every Direction.” Instead of retrenching to focus on some sort of “core” the article points out how Virgin’s leader, Sir Richard Branson, keeps taking the business into new, far flung operations. Defying conventional wisdom, Virgin is in money lending, mobile phones, gaming, social media, international airlines, domestic airlines and even intercontinental flight! By intentionally avoiding any kind of “core” Virgin keeps growing – even during this recession – adding jobs for employees, higher value for investors, more sales opportunities for suppliers and more chances to buy Virgin for customers!
Conventional wisdom be danged ….. maybe it’s time to look at results! Organizations that whittle themselves down to “core” by asset sales or cutting destroy value. While it may feel self-flaggelatingly good to talk about cuts, it does not create value. Only growth can do that. And there is growth, when we start focusing on market needs. Virgin is finding those opportunities – so what’s stopping you? Is it your “focus on your core” business? If so, maybe you need to read the Forbes article “Stop Focusing on Your Core Business.” It may sound unconventional, but then again – isn’t it those who defy conventional wisdom that make the most money?
Postscript: I offer my personal best wishes to Ms. Barnes on her recovery. It has been reported in the press that Ms. Barnes recently suffered a stroke. I know how difficult a time this can be, as my wife stroked at age 54, and I was her personal caregiver for 3 years of difficult recovery. Stroke recovery is hard work. For the patient as well as the family it is a tough time. While I have been a detractor of Ms. Barnes leadership at Sara Lee, in no way did I ever wish my comments to be personal, and I would never wish anyone suffer such a difficult health concern as a stroke. Again, my best wishes for a full recovery to Ms. Barnes, and for both her and her family to have the strength and tenacity to come through this ordeal stronger and even more tightly knitted.
