Four Lessons From the Turmoil at Yahoo

The one-time leading internet giant is on the ropes. A few of its missteps provide some good advice for leaders to avoid their own errors.

Depending on how you look at it, it’s been a rough week, rough few years, or rough decade for Yahoo. The latest first: Last week the internet company’s board pushed back against its CEO, Marissa Mayer, who wanted to spin off its stake in the Chinese internet firm Alibaba. Now the company is facing the likelihood of selling off its core business of search, news, and community.

All of which puts new scrutiny on Mayer, who came aboard as a purported turnaround artist in 2012. But ever since she arrived she’s had the challenge of steering a rudderless ship: Yahoo arguably hasn’t been a dominant player since the idea of internet portals died in the late 90s.

Armchair quarterbacking any kind of leadership is a tricky, sometimes unfair business. That can be doubly so when it comes to technology, where talk of claiming market share gets messy when markets emerge or vaporize almost instantaneously. But enough common themes seem to have emerged from the Mayer era at Yahoo to at least make some red flags worth pointing out.

If the reason for your existence is done, why hang around?

1. Find your reason for existence. “To change a culture, you have to know exactly what you are changing,” wrote Jamie Notter and Maddie Grant, CAE, in Associations Now. On the evidence, Mayer has spearheaded a kitchen-sink approach to expansion, spending on news, blogging, TV, mobile video, and social media to counter its lost standing in search to Google. Those are newsmaking moves, but they’re not results of a strategy to define what the company does and improve it.

A number of association consultants who are called to assist flailing organizations often like to start board conversations by prompting them to answer a simple question: Why do we exist? The lack of a clear immediate answer doesn’t necessarily signal a crisis—indeed, it may point to a better answer to the question. But you do need to find an answer. “I think strategists go around telling companies that the objective of a company is to sustain itself, which I think is absurd,” NYU professor Aswath Damodaran told the Washington Post in an interview about Yahoo’s troubles. “A corporation is a legal entity, and if the reason for your existence is done, why hang around?”

2. Avoid the rubber-stamp board. Plenty of dumb folklore surrounds the tenure of Apple CEO Steve Jobs, but perhaps the lunkheaded-est is the notion that his iEra successes were a function of a board that rolled over and stayed out of his way. Unquestionably, Apple had an exceedingly compliant board. (Famously, former SEC chair Arthur Levitt was disinvited from Apple’s board after Jobs read a Levitt speech in which he made the commonsensical point that boards should actively challenge CEOs.) But it also had a strong product vision that was regularly presented to a tech-savvy group.

Mayer seems to have been given the freedom to pursue ideas that she feels are best for the company. But prior to the board’s questioning of the Alibaba move, some evidence suggests that it didn’t have the governance structure that was in a good position to assess them. According to a USA Today report, board members who challenged Mayer quickly stepped down, and “most [board members] who were recruited by Mayer know little or nothing about Yahoo, media or the future of internet businesses… And most board members aren’t insightful enough to understand whether a proposal can or cannot be executed.” In that light, it’s not hard to see why Yahoo is struggling.

3. Stay out of crowded markets. Part of Yahoo’s turnaround effort was a deep investment in original programming, from TV shows like “Community” to live concert broadcasts. But a lack of focus on that product, combined with the fact that it was competing with companies like Amazon and Netflix moving much faster on that front, doomed the effort. Yahoo recently announced that it took a $42 million bath on it.

Among the problems with stepping into arenas that already have dominant players is that you’re typically playing defense—instead of creating something new, you’re always hustling to keep up with what others are doing. As a case study in goalpost-moving, mission creep, and overall mismanagement, take a look at “Purple Reign,” an article in the Baffler about Yahoo’s move into the news business. Between its tales of revolving-door management, lack of focus, and directives caked in buzzwords, the piece may be the most valuable article about what not to do you may read this year.

4. Take a chance. Fixing a deeply broken company isn’t easy. But that brokenness represents an opportunity, too—a chance to apply a new vision to a company and make bold moves that fulfill them. New York Times technology writer Farhad Manjoo recently suggested that Mayer’s error wasn’t in thinking that streaming original programming was the future; the mistake was that Yahoo didn’t buy Netflix in order to own that vision. “Instead of making a single big bet that might have focused the company on something completely different and potentially groundbreaking, Ms. Mayer staked out a lot of small and midsize positions, rarely committing to anything early enough to make a difference,” he wrote.

All is not lost. Mayer is still in charge, and the huge user base that Yahoo has may yet be leveraged into a moneymaker. But the clock is ticking a little faster there than it is at more stable organizations, and fixing the problem will likely involve settling the first-principles issues that every leader is responsible for: strong vision, an appetite for sensible risk, and good governance.

What are the elements of a successful turnaround, and how have you seen it work—or made it work yourself? Share your experiences in the comments.

(Justin Sullivan/Getty Images)

Mark Athitakis

By Mark Athitakis

Mark Athitakis, a contributing editor for Associations Now, has written on nonprofits, the arts, and leadership for a variety of publications. He is a coauthor of The Dumbest Moments in Business History and hopes you never qualify for the sequel. MORE

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