The first year my business partner and I ran our web design agency was the most profitable year we had, and we let it go to our heads.
After a few years we found ourselves in debt, making razor thin profit margins, at best, on nearly every project. By then all we could do was keep our heads above water to keep from drowning.
Something had to change, and for us that meant selling off our agency and focusing on Proposify. Now that things are going well again, I actively work to make sure we don’t make the same mistake twice.
The recent sale of Yahoo is what got me thinking about this. Before the dot-com bubble broke, they were on top of the world, but then steadily declined for 16 straight years. Yahoo was outsmarted, out-designed, out-engineered, and out-competed in every possible way by better companies, and in the end, sold for parts, like a 1998 Ford Fiesta.
Quincy Larson wrote an excellent post on Medium called The rise and fall (OK — mostly fall) of Yahoo. In it, he lays out major business mistakes Yahoo made and the details behind them, like Yahoo giving up their shares in Alibaba (now worth more than $200 billion) and rejecting Google when the founders tried to sell to Yahoo for $1M.
You probably aren’t running a business even a fraction the size of Yahoo, but there are things we can learn from their mistakes. I’m going to share Larson’s lessons from Yahoo’s failure and apply it to smaller businesses.
1. “Don’t confuse being in right place at the right time with being smart”
When I started Headspace, web design as an agency business was still relatively unique. Most local agencies were adept at branding, advertising, and other “offline” marketing, while others cited websites on their list of services, but few firms in our region were focusing on ‘just’ designing for screens.
This gave us a big leg up early on, because clients who wanted the best web experiences for their users weren’t going to hire a print design company to design their websites, so we won a lot of business.
A few years later however, the small city I live in was flooded with other small web design firms. Being good just wasn’t enough anymore, there were lots of good shops.
We should have had the foresight to specialize our services, build a stronger culture, and frankly, do a lot of things better. Thankfully we did work on internal products which resulted in Proposify, but it was a long, hard road.
On a larger scale, Yahoo fell into the same trap. Because money came easy to them early on, that was all they cared about so they missed longer plays for bigger opportunities (case in point: what Google became).
Timing plays a big role in business, and being in the right market at the right time is essential to starting a successful business. But foundationally you need more than that if you want your business to thrive long term.
You need to:
- Work to understand your unique value proposition, and how to communicate it for lead generation.
- Never stop reading and learning from others.
- Have a big picture vision of where you want to be, and all the smaller goals in between.
- Employ lazy leadership by thinking of your business as a machine you need to build.
- Work on building a strong culture, even in the early days.
2.“Don’t forget what it was that got you to where you are today”
Yahoo Mail, Yahoo Answers, and Flickr were once the go-to places for free email, Q&A ,and photo sharing. They had years on Google, Quora, and Instagram, all who ended up respectively beat them at their own game.
They had ample resources but didn’t learn from users,or iterate and improve on their products, so thus, they quickly became obsolete.
It’s easy to get shiny-ball syndrome as an entrepreneur, looking to change your offering prematurely, or move to greener pastures. It’s even harder to double down on what’s working and improve it so competitors don’t come along and eat your lunch.
The best way to avoid this mistake it to focus on your customers. I know it sounds cliché, but taking the time every week to talk to your customers and learn how and why they use your product/services will keep you grounded in reality.
Even though it took Proposify 18 months to hit product-market fit, we didn’t get there by switching gears. We knew we were onto a product that solved a pain for a particular market, and focused on it until what we built was useful and worth paying for.
Even now, that same audience—web and marketing agencies—still make up the bulk of our customers, despite us dabbling in other industries (as you can see in our template gallery).
3.“Don’t slaughter your golden geese while they are still producing eggs”
Yahoo once owned 40% of Alibaba, a Chinese e-commerce site, now valued at over $200 billion, but they sold off most of their shares before it reached that level. Some estimate that sale lost Yahoo about $50 billion.
As a small business owner you may not have any other investments than your business itself. But even then it can be tempting to overspend when you have cash on hand, overpaying yourself to afford fancy things and exotic vacations.
Of course, you need to reward yourself for your hard work and risk, but you also don’t want to bleed your company of necessary capital it may need during sales lulls, or forgo opportunities to expand and reinvest the profits.
It can also be tempting to overhire while there’s cash in the bank instead of hiring slowly and carefully to make sure your team isn’t bloated and underutilized.
4.“Don’t fall for people who are professional professionals”
Yahoo hired Scott Thompson as their first CEO, then Terry Semel, then Marissa Mayer, all of whom made massive blunders during their tenure, despite being career CEOs.
It’s easy to look at the rare first-time founders who succeed on an incredible scale like Mark Zuckerburg, Evan Spiegel, and (1980s) Steve Jobs to assume that novice founders have better odds of success.
The truth lies somewhere in between.
Back in the early days of Apple, Steve Jobs convinced John Sculley, a bigwig at Pepsi, to come lead Apple. That debacle, which resulted in Jobs being ousted and a steady decline of Apple stock, is told in detail in the Steve Jobs biography.
What is the lesson here for us?
Founders get pressured by investors to splurge on hiring a big-name VP Sales or CMO from Silicon Valley thinking that’s the most surefire way to guarantee success. And some founders fall for it.
In many cases, they haven’t yet reached product-market fit by understanding their customers. Instead they’re looking for an easy shortcut to success so they don’t have to roll up their sleeves and do the hard work.
In most cases, promoting from within is your best bet.
They may not have the experience as a manager but they’ve been there with you since the early days, and you’ve nurtured and challenged them along the way.
Someone from your own team who’s fresh from the frontlines will probably make for a better leader than someone who comes with a high price tag but has been out of the trenches too long. They may have blind spots that impel them to follow their business-as-usual playbook instead of innovating.
5.“Don’t let your assumptions blind you to new opportunities”
Yahoo turned down buying Google for $1M because they were afraid Google’s powerful search function would hurt their banner ad business. They were worried that Google would steer people away from Yahoo.
This kind of myopic protectionism kept Yahoo from seeing the incredible potential of owning Google’s better technology rather than competing with it. Apparently no one at Yahoo ever heard the saying, “If you can’t beat’em, join’em”.
They bafflingly missed seeing how having access to Google’s tools could be of benefit to their users. The thing is, when it comes right down to it, users are all that really matter.
Assumptions, and pride, can be (and have been) the downfall of any successful business. You always have to be looking at the broader picture of what’s best for your customers — what they want, what they need — and then figure out how to give that to them, in a profitable way, of course.
That may mean changing your business model, it may mean changing everything about your business. It may mean buying or selling. But if you want to stay in business and continue to flourish, you have to keep both eyes, and your mind, wide open.
Make sure your business doesn’t go from Yahoo to boohoo
Maybe you’re running a SaaS, e-commerce, or service business. Hopefully things are going well and you’re profitable.
Of course you want to keep doubling down on what’s working, keep learning from your customers, growing your team, and improving your core offering. That’s smart and healthy.
But you need to keep looking for new opportunities to grow and expand, whether that’s by investing in your existing company, or a new venture.
You need to make sure your assumptions about what’s working are backed up by hard data.
Take the time to read, learn, and reflect every day, and keep an open mind for what comes next. Your current business could be in just the right place at just the right time, but there’s maybe another product, service, or market you can pivot to in the future.
There are no easy answers or shortcuts to success, but employing this framework of thinking will ensure your business stands the test of time.