When the Startup Becomes a Dinosaur

I couldn’t help thinking that this Microsoft vs. Yahoo conquest is just another example of the influence of money. By that I don’t mean the financial influence of Microsoft’s vast empire but instead the moment when a company goes from being one with a startup mentality to becoming a (gasp) corporation.

In April, 1996 Yahoo had it’s initial public offering . Over the next four years Yahoo’s rise to power was dramatic, culminating in a stock price of $475 a share in early 2001. This meteoric rise can be traced to two major factors: innovative ideas and a reputation for giving users the information they want even if it meant Yahoo would not make money off of it. It was during this time period that Yahoo was wildly successful at acquisitions as a means of launching new products. You had Yahoo Mail, Yahoo Instant Messenger, and Yahoo Groups emerge from this strategy of buying up innovative products and making them uniquely Yahoo. The evolution of the little startup from Stanford to large internet corporation appeared to going smashingly well.

However, another important event began to happen at this time. The original founders of Yahoo became rich( According to Forbes, Jerry Yang’s net worth is 2.2 billion). They were no longer a big group of friends working together to see how far this thing can go. The thing went and they were given huge sums of money for making it go. Here is the rub: Just when the payoff came it was time for the really hard decisions to be made.

This is where the real failure of Yahoo occurred. It’s like the baseball player after his big contract year. They got fat. They lost that startup mentality. When they were a startup company it was all about creating a vision for the company and reaching for new and innovative ideas that would fit into that vision. When they finally became an internet giant they stopped reaching and started playing defense. The response was to keep playing the acquisition strategy. The problem with that is when you are growing it is a great way to gain market share but when you become a huge corporation you are adding levels. Those levels need to be assimilated to the company and need to be managed effectively. As a result your ability to adapt to change is greatly hindered.

Somewhere along the line Yahoo got too big and became a corporation complete with comfort levels and prudence. In 2007 the board brought back Yahoo founder Jerry Yang as CEO but he has proven unequivocally that he is out of his element. He is a visionary not a manager and Yahoo is now too big and out of touch for visionaries.

The cruel irony in all of this is that the reason Yahoo had to start playing defense is largely because of Google, the company they helped build by outsourcing their full text search to them. Unlike Yahoo Google somehow has maintained that startup mentality. Maybe it is their management style or group hugs or sitting around singing Kumbaya but whatever it is they have the “it” factor. They are the trendsetters not the wannabes. They continue to push the envelope while maintaining the best user experience, all because they are able to maintain that startup mentality.

What is truly amazing is that Yahoo may end up being devoured by Microsoft, a company that will never be confused with having a startup mentality. Oh well, I guess great minds think alike.