Zinged – To Be Criticized Directly (Webster’s Online Dictionary)
There is a lot of excitement at Zynga headquarters lately. And it reminded me of when I had just gotten out of college and got involved in a ruthless Scrabble® club. (My wife and kids still ridicule 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 admit I was hooked again. (In February I was playing with friends in San Francisco, Colorado and my hometown of Charleston while on Safari in Africa.)
Which brings me, albeit long, to today’s topic: What Happens When Your Business Has Weak Muscles? What happens when a fast-growing company does not have a strong core business and is injured? Can you bounce back and bounce off the mat and answer the buzzer for round two? What awaits a company when its core does not fit with its business model?
A stark truth about markets is that companies only have a certain useful life. And they are generally measured in single digits, not decades. Very few companies can “get off the mat” and go into a second round if they have taken too many body shots.
Does this sound like Zynga to you? I can tell you with great certainty that Zynga won’t be around in 5 years, let alone 10 years, unless you start building essential business muscle.
As AllthingsD’s Kara Swisher recently commented
Zynga was optimized to rule a very specific niche, the Facebook desktop game, at a particular time. When the ground moved, its foundations collapsed. You see: the real news here is not that the company is dying, but that its inner zombie is still in control, valiantly trying to adapt an antiquated business model to a medium it was not built for.
The speed of business, especially in the online world, is at an all-time high and increasing rapidly. A company like Zynga must have internal mechanisms to swiftly and skillfully shift to serious dynamic changes in the market. You must build strong business muscle faster than ever.
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 business viability. That is what is required for an acceptable return on investment. By concentrating on these basic elements, you build a “muscle” similar to exercising in a gym. More muscle equals more endurance and strength.
In a business context, it equates to having the means to withstand the downturns and recessions of business cycles. A business core is the combination of internal human assets, intellectual property, finances and organization to help the company stay 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 cash reserves and create positive cash flow. Isn’t that the “ABC” of any company? You cannot spend cash indefinitely. Even online startups have to generate positive cash flow eventually. Not all of them are going to buy before this happens.
What happened in Znyga? They spent cash on the OMG acquisition and kept an inflated staff for far too long.
This is a sign of a weak financial and accounting muscle.
- Build a business model that is based on getting people to willingly pay for the company’s products. An unlimited version of Freemium with little incentive to switch to a paid version is not a sign of a strong business “sell” muscle.
Reliance on Freemiums is a sign of a very weak sales muscle that denotes a lack of confidence in the company’s true value proposition.
- Create a fundamental foundation for the company (company products or services) that adapts quickly to changes in online use (computer versus mobile devices)
Zynga exhibited weak business strength by hooking too long on Facebook.
Basing your business on someone else’s muscle if it is too dangerous.
- Have a complete portfolio of new products and services. Understanding the ephemeral nature of games and entertainment would warrant a greater emphasis on this.
We live in a world of short-term attention spans. There is a consumer expectation of something new.
Zynga exhibited weak entrepreneurial strength by relying for too long and too much on two games: Farmville and Words with Friends.
- Grow an organization that doesn’t depend on one or two ‘star’ players.
The CEO and founder of Zynga wielded ultimate control that often leads to laziness in the ranks. All ‘star’ players eventually have diminishing contributions. Building a business based on processes versus personality is a stronger model.
The view that all businesses can and should continue forever into the future is false. Businesses are developed to maximize return on investment. For most companies, this means spending enough time to convert human, financial and intellectual capital into added value. Without sufficient longevity, this rarely happens. Without good business muscle, this almost never happens.
Perhaps the lesson is that companies created to capitalize on the fashion of the day must be built from the ground up to be small, light, and temporary, similar to an advanced operational military base. Bare bones and ready to move on to the next deployment. That way, when the time passes, they can fold neatly and everyone can move on, rather than leaving debris scattered throughout the business and financial communities.
Maybe this is how companies like Zynga will stop freaking out.
