Yahoo just fired their CEO largely because she failed to turn Yahoo around. Failures such as Yahoo and successes such as Apple differ from the start. A successful turnaround actually looks very similar to a successful startup in its transition phase suggesting the same skills needed to cure an ailing company can be found in a firm successfully transitioning from an unprofitable startup to profitable sustaining firm.
Three Phases
A company goes through three phases to success. They are founding, transition, and sustaining. There is a fourth phase, decline, that generally occurs (realize that you can count the firms that have been around 100 years on your fingers), but since we try to avoid that phase, I won’t dwell on that.
A turnaround is very similar to taking a firm from its founding or startup phase to a sustaining profit stage and it often requires a different skill set than either the sustaining phase or the startup phase. It is interesting to note that, while it is common for CEOs to be good at one of these phases, given the massive differences, it is very rare for a CEO to be able to do all three successfully.
This is because those that are good at doing startups like small teams, have deep personal loyalties and passions, and often relatively short attention spans. The most successful transition executives have few ties to the way things were in the startup and can focus like a laser on the eventual profitability goal, and sustaining managers are good at not breaking things that are working. In the first two phases, excitement is a way of life, but, in the third, it often is a bad thing.
Steve Jobs initially showed competence in startups, but as he matured that maturity led him to excellence in transition and eventually enabled him to create one of the strongest sustaining companies I’ve ever seen. In a way, his skills changed, which made it unlikely that he could ever do another successful startup, but making him ideal for running Apple in its current form.
The Second Most Important Part
The second most important part of any firm going through a transition is its core team. You have to have a stable group of folks who can work well together and cover the critical aspects of the firm. This never seemed to happen with Bartz in Yahoo and this is often why a high profile, very highly paid, CEO fails. The star status of the CEO and their unusually large compensation tends to make it difficult for the core team to work as a team. Having said this, that doesn’t mean they have to operate as peers. In fact, a solid line of authority is generally best, but if the CEO is massively overpaid it can both foster resentment in his or her subordinates and their salary can become a big distraction for the board, the executives, and employees.
The Most Important Part
The most important part is vision. This can be a very different problem for a startup and a turnaround. A startup generally gets to the transition point as a result of the successful vision from its founders. A turnaround often is in trouble due to either the lack of a vision or a failed vision. But without a clear idea of what is trying to be accomplished it is virtually impossible to pick the core skills that are needed – let alone execute a successful turnaround. Experienced boards either hire to vision that they believe can be achieved or use the interview process to discover which CEO has a vision for the firm they think will be best and then assess whether that CEO is capable of building a team to execute it.
Inexperienced boards do what Yahoo’s board did with Bartz: Hire a CEO who has been successful and hope they can repeat that success. This approach, as we saw with Bartz, is rarely successful. Jobs came back to Apple with an initial vision in line with Apple’s creation and then, once survival seemed more assured, altered it to embrace the iPod.
Where Bartz Failed
Bartz failed at three levels. First her selection wasn’t based on a vision and she wasn’t able to create a viable vision. Second, she was massively overpaid and her salary added significant difficulty to the process. Third, the combination of the first two things didn’t allow her to form a team that could succeed. Fourth, she never was able to take the company down to a level that created a foundation she could build from. In short, like a house of cards, she lacked a foundation of vision, team, and offerings Yahoo would have needed for a turnaround.
The next team should look at how Bartz failed, how Steve Jobs succeeded, and craft a simpler, more evenly skilled, team and product set that can be a foundation for a new Yahoo. If that happens Yahoo’s success is more assured, if it doesn’t Yahoo will join Netscape in the history books.
Rob Enderle in Business on September 07
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