Zinged: Being Criticized in a Pointed Way (Webster’s Online Dictionary)
There’s been a lot of buzz around Zynga’s headquarters lately. And he reminded me of when I was fresh out of college and got involved in a cut-throat Scrabble® Club. (My wife and kids still make fun of me for being a nerd.) Decades later, I was excited to sign up for Zynga’s “Words With Friends” game, essentially an online version of Scrabble®.
I admitted that I was hooked again. (In February I was playing with some friends in San Francisco, Colorado and my hometown of Charleston while on Safari in Africa.)
Which brings me, albeit a bit long, to today’s topic: What happens when your business has weak business muscles? What happens when a fast-growing company does not have a Strong Core Business and is injured? Can he recover and bounce off the mat and answer the bell for the second round? What awaits a company when its core is out of step with its business model?
A hard truth of the markets is that companies only have a certain lifespan. And they’re usually measured in single digits, not decades. Very few companies can ‘get off the mat’ and make it to a second round if they’ve taken too many body shots.
Does this sound like Zynga to you? I can tell you with much certainty that Zynga will not exist in 5 years let alone 10 years unless it starts building essential business muscle.
As Kara Swisher of AllthingsD recently commented
Zynga was optimized to rule a very specific niche, the Facebook desktop game, at a particular time. When the ground shifted, its foundations collapsed. You see: the real news here is not that the company is dying, but that your inner zombie is still in control, valiantly trying to adapt an antiquated business model to an environment it was not built for.
Business speed, especially in the online world, is at an all time high and increasing rapidly. A company like Zynga must have internal mechanisms to quickly and skillfully adapt to serious dynamic changes in the marketplace. You must build strong trading muscle faster than ever before.
So what do I mean by Business Muscle and a strong Business Core?
Simply put, they are the essential value-added processes, products, assets, and intellectual property that create long-term commercial viability. That is what is required for an acceptable return on investment. Focusing on these basics builds ‘muscle’ similar to working out in a gym. More muscle equals more endurance and strength.
In a business context, it equates to having the means to weather the dips and downturns of business cycles. A business core is the combination of internal human assets, intellectual property, finances, and organization to help the business stay around long enough to generate a good return for its shareholders.
So let’s turn our attention to Zynga. What kind of muscle should they have been building?
- Build up cash reserves and create positive cash flow. Isn’t that the “ABC” of any company? You can’t burn cash indefinitely. Even online startups have to generate positive cash flow eventually. Not everyone is going to buy before this happens.
What happened in Znyga? They spent cash on the acquisition of OMG and kept a bloated staff for far too long.
This is a sign of a weak financial and accounting muscle.
- Build a business model based on getting people to voluntarily pay for the company’s products. An unlimited Freemium version with little incentive to switch to a paid version is not a sign of strong business ‘selling’ power.
Confidence in Freemiums is a sign of a very weak sales muscle denoting a lack of confidence in the real value proposition of the company.
- Create a fundamental foundation for the company (company products or services) that quickly adapts to changes in online usage (computer versus mobile)
Zynga exhibited weak business strength by being tied to Facebook for too long.
Basing your business on someone else’s muscle is very dangerous.
- Have a complete portfolio of new products and services. Understanding the ephemeral nature of games and entertainment would warrant more emphasis on this.
We live in a world of short-term attention spans. There is an expectation of something new.
Zynga exhibited weak entrepreneurial skills by relying too heavily and for too long on two games: Farmville and Words with Friends.
- Grow an organization that doesn’t depend on one or two ‘star’ players.
Zynga’s CEO and founder wielded maximum control that often leads to laziness in the ranks. All ‘star’ players eventually have diminishing contributions. Building a business based on process versus personality is a stronger model.
The view that all businesses can and should go on forever into the future is false. Businesses are developed to maximize return on investment. For most companies, this means staying in the market long enough to convert human, financial, and intellectual capital into added value. Without sufficient longevity, this rarely happens. Without a good business force, this almost never happens.
Perhaps the lesson is that companies built to capitalize on the craze of the moment should be built from the ground up to be small, light and temporary, akin to a military forward operating base. Essential and ready to move on to the next deployment. That way, when the time passes, they can be neatly closed and everyone can move on, instead of leaving debris scattered throughout the business and financial communities.
Maybe this is how companies like Zynga will stop being criticized.
