Smartest
among Smart
Lessons to be learnt
from Facebook's Purchase Of WhatsApp
Facebook is
acquiring WhatsApp, a company with at most $300M revenues, and 55
employees, for $19billion.
In today’s globalize world very established,
successful companies sell for far lower valuations. Apple is valued at
about 13 times earnings. Microsoft about 14 times earnings.Google 33
times. These are small fractions of the nearly infinite P/E placed on
WhatsApp.
There is a leadership
lesson offered here by CEO Zuckerberg’s team that is well worth learning.
1.React
fast to avoid irrelevancy.
Irrelevancy can happen
remarkably fast. Communication requirements have alter the use and impact of
things like images, charts and text. All of these have the potential impact
of slowly eroding the value of Facebook.
Most leaders address by launching new products to leverage the
trend in the market. And Facebook did that. Facebook managers and
technologists not only worked on making the platform more mobile friendly, but
developed Facebook’s own platform apps for photos, messaging and all kinds of
new features asked by present market scenario.
”Often
answers come from the market, not internal effort.” Yet prove by this event.
All of these actions
were efforts to defend and extend the early leader’s market position. Even
though the market is shifting, and trends are developing externally from the
company, leadership will tend to look inside for an answer. Leaders will
often ignore the trend, disparage the competition, keep promising improvements
to historical products and services.
2.Giving
an acquisition independence is critical.
How will this all be
monetized into $19B? The second brilliant leadership call by Facebook is
to not answer that question, because nobody really knows.
Facebook didn’t know
how to monetize its early leadership in users, but management knew it had to
find a way.Now the company has grown from practically no revenues in
2008 to almost $8B in just below 5 years.
3.
Utilization
of money
$19B is a huge amount
of money. Unless you don’t really spend $19B. Facebook has the
blessed ability to print its own currency. Private money that it can use
for acquisitions. As long as Facebook has a very high market valuation it
can make acquisitions with shares, rather than real money.
By making acquisitions
with Facebook shares the leadership team is able to link the newly acquired
managers to the same overall goals as Facebook, while offering an extremely
high price but without actually having to raise any money – or spend all that
money.
Conclusion
The leaders of Facebook
are giving us a lesson in an alternative approach.
(1)Recognize
the market shift. Accept it. If there is a better solution, rush
toward it rather than ignoring it. (2) Bring
it into the company, and leave it independent. Eschew integration and
efforts to find “synergy.” (You never know, in three years the company
may need to be renamed WhatsApp to reflect a new market paradigm.)
(3) And
as long as you can convince investors that you are maintaining your relevancy
use your highly valued stock as currency to keep the company moving forward.
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