Lesson Seven: Squeezing too tightly will kill your business
Observations from my time at Yahoo!
There is like, an entire cottage industry dedicated to examining what happened to Yahoo! I have been reading blog posts and think pieces from before the demise of Yahoo! that explains why the company is dead. I don’t think I have ever read one that truly got to the heart of the challenges that existed. I don't mean to add to the think pieces but I definitely have some observations.
I’d like to start out by saying some of the things that were not the reason. I worked with about 15,000 similarly dedicated professionals. We all knew that Yahoo! had some rough spots and we all still enjoyed our time there much more than we focus on those rough patches. Some of the best friends I have ever had I met on the shuttle bus rides from a parking lot off 580 at Tassajara Road in Dublin, CA down to 701 First Avenue in Sunnyvale, on the muddy and majestic shores of the south end of the San Francisco Bay. The people were by and large engaged and extremely intelligent.
One reason I have read people posit a few times is that Yahoo! did not understand the direction the Internet was going to take. That they did not quite understand the products of the future. That there was a lack of vision and they didn’t know where they wanted to head.
I think this is pretty ridiculous when you consider in 2006 Yahoo! released a streaming video platform called Yahoo! Video before Google purchased YouTube. Similarly, Yahoo! acquired Flickr, a precursor to all the photo sharing apps that dominate social media today... in 2005! That is 5 years before there was an Instagram. Yahoo! even saw that both Google and Facebook were going to be huge things and attempted to buy them early in their existence.
Yahoo! did not have a problem with lack of vision. If anything it could be argued that in some of the cases above they were either right on time or too early to the future. So if the problem wasn’t a lack of vision, what the heck held Yahoo! back to the point they are now not even their own company and just a brand managed by a Private Equity firm? Well, if it isn’t vision, it has to be execution right?
So what held Yahoo! back from executing on what was actually a pretty solid understanding of where the Internet was headed? I have read many pieces placing the blame for lack of execution on the lack of leadership from the CEO. In my time at Yahoo! We had two, and I came just on the heels of Terry Semel leaving the company.
It could be argued that Semel was part of the problem I guess. I don't know from firsthand observation because I wasn’t there at the time. He was the CEO that was there when they realized Google would be a good get and he didn’t get them. He was the CEO when they realized that Facebook would be a good get and he didn’t get them. Maybe he wasn’t the guy with the vision, but one of the guys with the vision took over for him.
Jerry Yang was a cofounder of Yahoo! He and David Filo started the company as a list of cool websites they liked to visit. The list grew in popularity, they attracted investment, turned the list into much more and before long they were a public company. They hired a professional CEO, Jerry and David held the title “Chief Yahoo.” The Dot Com Bust of the late 90s and into early 2000 hit and they hired a new Professional CEO in Semel. But the ideas about which companies to acquire and thus the vision of where the Internet was headed came from Yang and Filo.
Yang drove arguably the single best investment any American company made in a Chinese startup when he pushed for the acquisition of a part of eventual game changing company Alibaba. Yahoo purchased a 40% stake in Alibaba for $1B in 2005. They sold a portion of that for $7.6B in 2012 and made an additional $9.4B when Alibaba IPO’d in 2014.
This is not to say that Yang was perfect. He handled a scandal involving Chinese Government overreach pretty terribly. I remember watching as Tom Lantos ripped into him and he fell back on his “If we want to operate in China we have to follow the local rules” line of defense, which was technically true but sure didn’t help his image.
The final straw for investors was his botched handling of negotiations with Microsoft when the Seattle based monolith attempted to acquire Yahoo! in 2008 for $44.6B. Microsoft was attempting to catch Google in the search market with an engine called Bing and Yahoo! was seen by Microsoft as an easy way to lean into a broader Internet strategy. The offer represented a large premium of over 60% compared to Yahoo!’s stock value. Yang was against the sale, which as an employee when this was going down I was with him, and didn’t make a counter offer per published reports at the time.
Yang resigned and stuck around for a while before returning to the title of “Chief Yahoo” when Carol Bartz took over. Carol Bartz was a hard charging type and I remember listening to her first call with financial analysts. We felt like a punching bag for the financial analyst community at the time, especially in the wake of the nondeal with Microsoft and she gave them no quarter. I can’t remember if this is a direct quote or if it was just the feeling of the call but Bartz made it clear that her opinion was along the lines of “If analysts knew how to run a business they would be running a business instead of being analysts.”
It felt good to have a CEO who was pushing back and she was also really open and transparent with me and my teammates. Something that had been lacking for a while, but also was probably required as Yahoo! and Microsoft engaged in a dance.
So if the problem, from my perspective wasn’t a lack of vision or a bad CEO, what the heck was the problem? Like all slow death spirals, the source of the bleeding was not something anyone could see from the outside. I considered two factors to be what led me to be ready to seek a new challenge somewhere else: Corporate Feudalism and overly conservative business process.
I don’t know if Corporate Feudalism is an academic term, or even a concept that exists in the diaspora of capitalistic ideas so I should explain what I mean a bit. Also, these days if you write the word “conservative” or “liberal” you are asking for a twitter spat with someone who only reads the headlines but comments on the article. While there were many politically conservative folks at Yahoo! I am not talking about political opinions or theory here. A couple of examples to highlight what I mean when I say these were the defining traits within Yahoo!
One of the first times I felt seriously uneasy about leadership within Yahoo! having my best interest at heart, and thus the rest of my teammates, was when a VP level team member explained his philosophy for success to me. I am not going to write his name because he was far from the only leader at Yahoo! who thought this way.
“The company gives me a pot of money,” he said. “If I think you are helping me achieve the goals that I want to achieve, I can give you some of that pot. If I am unhappy with you and you are not helping me achieve the success that I want to achieve, I can take any hope of getting any of that pot.”
To be clear, this was a discussion about bonuses. I had heard about some folks getting very large bonuses and mine was not that large. He was at least four levels above me on the Org Chart, kind of the lord of his particular silo and it was an offhand answer to a simple question that I asked him in a brief 15 minute impromptu chat. But if you think it through, that concept could apply to everything from a bonus to whether folks had a job.
The reason I call this Corporate Feudalism is because it set up a triangle of power that was focused on the Crown, in this case Yahoo! and whoever the CEO was at the time, handing land, in this case a really big budget, to the nobility. The nobility, the VP, who was charged with the larger org would then extract rent in the form of time from the vassals. A guy like me at the bottom of the chain was essentially a serf who was afraid to use his rake on the land without that noble at the top saying it was okay for fear of repercussions, rather than being willing to take risks in order to help build the best producing village.
Corporate Feudalism is essentially an ego centric management culture, and there are more layers than what I just described. Now that the guy at the top is making it clear that the pot of money was his, the guys just below him were fighting with one another to establish their own sub territory and gain his approval. After all, the more people they could say they had in their territory the more likely they were to please the nobility. This became way more about having a large span of control than the objective performance of all those heads.
The guys below that were trying to prove vital in the fight of their immediate superior, also trying to build larger spans of control to justify awesome bonuses. The front line managers were generally pretty easy going and really spent a lot of time trying to run interference for the ground level guys like me. I was essentially a serf in this model trying to till the field. There were many more serfs like me left to make PowerPoint presentations that gave the impression of an awesome field being tilled when we should have been seeking new fields to till.
The other side of this coin was the conservative business process. They are symbiotic, not cause and effect exactly but not unrelated and existing in a vacuum. The constant silo building and territory grabbing was aided by a “decision by committee” standard that was created and enforced from the very top. On the Infrastructure side there were two of these tribunals at work for the entire time I was an employee of Yahoo! and sadly leaders at the top of the chain thought they were effective. I think mainly because they got to pontificate and look like they were running that big span of control that they were using to justify the big bonus.
They were called the Hardware Resource Council and the Network Steering Committee. We all called them the HRC and the NSC. They were a colossal waste of resources with the stated purpose of avoiding the wasting of resources. It was Inception level awesome.
I was only ever at a few of the HRC meetings and usually I was there because someone on my team was asking for the use of a new server and invited me along. There is something bizarre about sitting in a room with a billionaire, multiple millionaires and then several six figure salaried individual contributors to discuss spending $10,000.
These meetings were so plodding and misguided that I don’t really remember a lot of details on the HRC side. I do recall a fellow Yahoo! asking for new servers and watching some of the highest paid people in the country log into the existing servers of the requestor and check how well they were utilizing their resources. Literally, a room full of people that cost the company hundreds of thousands of dollars to clamp down on releasing a server to someone that cost the company a few thousand dollars.
I do remember, intimately, the times I was called to the NSC. Usually my compatriot who did capacity planning would come to me and say, “Our link to (insert country name here) is running hot.” He’d show me how the traffic had increased and the capacity was being consumed, average utilization would get over 50% and that meant that if that circuit went down the failover path, which was being used for other traffic, would be saturated and customers would experience trouble accessing Yahoo! in whatever part of the world we were talking about.
I would take this info, look at our existing contracts and see how we could leverage a new spend to reduce an existing commitment. Perhaps we had other circuits that were coming up to the end of their spend. Maybe there was an opportunity to add a new subsea cable system to our existing footprint and improve resiliency while also adding the required capacity. I’d check with our local resources to see if they had suggestions on vendors that would make good partners.
After a bit of time all of this would be pulled together and I would sit down and make that sweet PowerPoint slide with a chart, graph and table. I’d probably include bullet points to spell out the actions we had taken. I’d show the slide and the room full of money would debate my work and usually, the first time I presented a specific project, I would be asked to “sharpen the pencil” and bring it back the following month.
The first time this happened I felt like I was taking crazy pills. I was complaining about it to a friend and he started laughing. He advised me to change something, make some of the numbers bold anything and bring it back. I did this and to my surprise the identical data, with an update that we were now consuming a greater slice of our capacity and we were really running the risk of a major outage if we lost a single cable system, still resulted in “sharpen your pencil.” For those who work in this line of business this is a scary concept. It is not uncommon for a subsea cable system that crosses the Pacific Ocean to go down due to any number of factors and be completely unusable for as much as 30 days.
The third time was the charm and there was absolutely no difference in the cost to the business. The only difference was that three months later our traffic had grown to the point where even without a failure we were running the risk of link saturation within a few months and it took 45 to 60 days to get the new capacity turned up and taking traffic.
To summarize, my capacity planning friend had alerted all of us to an approaching risk. I did a lot of diligence and pulled together a negotiated solution that took into account more than just the transaction at hand. I sat in a room three times over three months that cost the company hundreds of thousands of dollars. All to get approval to spend less than $10,000 a month on something we needed to keep our service up and available for the world at large to see the advertisements we made a whole lot of money showing the world at large.
Let us say for the sake of argument that the hour in the room with about 20 people debating a process that only two people were really involved in at a cost of $100,000 for the company. We did that three times, so in total it cost us $300,000 to debate spending $10,000 a month for 24 months. We spent $300,000, partially, to debate spending $240,000 over two years that we were going to pay at some point no matter what. This doesn’t even account for the opportunity cost of the fire drill that everyone else down the line had to endure rather than focusing on other, equally as important work.
I’d like to wrap this up with a snappy summary of the lesson but, after reading all of that do you really need one? Okay… Don’t treat your organization like you are a feudal lord, it might make you personally very rich but it won’t keep your company going, especially when you are in the hottest tech job market on the planet and folks have other options. Don’t waste a bunch of time and money making decisions by committee when you can trust the people you have hired to manage resources. If you can’t trust them, find people you can. Which I guess is hard when you think about point one and the whole feudal lord thing.
Just an observation.