The cover of this month’s Vogue has a full face, close up photo of the model and actress Sienna Miller, juxtaposed immediately beside it is the headline “Sienna Miller on pregnancy and privacy.” Vogue has a monthly readership of 1.3 million readers. I assume there is no irony or humour intended, as rather like their ironing, I suspect the journalists at Vogue get someone else to do their irony for them.
Without trying to be condescending about fashionistas, I do think there is something profoundly stupid about a seemingly intelligent and cogent person talking openly about privacy on the front page of a world famous magazine. My (possible naive) assumption is that if you want privacy you don’t herald the fact on the front cover of a newsstand, you just remain silent.
There is a brilliantly perceptive phrase in French; “jolie laird” which means “pretty ugly.” It’s a insight that some seemingly unattractive people can, in fact, be gloriously attractive, that people with one set of attributes can, in fact, behave like the complete opposite. I have a similar insight "brilliament stupide," roughly translated means “brilliantly stupid.” This, in a nutshell, means that members of corporations, companies or political parties, made up of extraordinarily well qualified and gifted people can say or do things of such febrile stupidity that any external analyst cannot find a rational explanation for their behaviour.
The period around the dot.com bubble was the prime example of this; around the millennium so much utter management rubbish was talked about the internet with ridiculous valuations for companies, when the reality was the internet was actually a sub-optimal medium with poor quality websites on slow dial up connections, aimed at a bunch of consumers with no desire for e-commerce. Companies, like Time Warner, destroyed their value with their deal with AOL, dubbed the worst deal of all time.
The initial investors might have been naive, what was completely incomprehensible was the inability of seemingly well qualified management teams to learn from the hubris and failure of the dot com bubble and continue to make ridiculous investments 5 years after the bubble burst; ITV paid £175 million for Friends Reunited in 2005, then managed to destroy all the value in the business and sold it 5 years later for £25 million. About the same time, News Corp acquired My Space for $580 million and sold it in 2011 for $35 million. Two mature, seemingly intelligent media businesses, with great track records of success carefully built over long periods of time, getting duped like teenage girls in a fake perfume shop in Oxford Street, to part with huge amounts of money to buy assets that they subsequently destroyed.
How does this happen?
We live in a world dominated by news and comment and it’s very difficult to go against the flow or reject the zeitgeist. News Corp bought My Space because they could see advertising budgets money moving from offline to online, therefore they had to set up an internet division, then they bought the 5th most viewed domain in the US, with the objective it would drive traffic and revenues would follow.
The logic is infallible; the Murdoch management team came from a strong traditional media heritage, where audiences are predictable and tend to do what they are told, whether reading the Sun or watching football on Sky. Traditionally, if News Corp invested significant funds into content, it generated an audience and revenues followed; however social content on the internet can’t be controlled in this way. They also probably didn’t know that Facebook had launched 17 months before they bought My Space, with no real funding and would destroy the value in the business.
I suspect very few people criticised the News Corps logic at the time and it’s easy to be smart in retrospect, however there are lessons we can learn.
How not to be brilliantement stupide.
1. Businesses need to be flexible; News Corp has a command and control culture that doesn’t lend itself to social technology businesses. My Space could have been the future of the music industry, but required a different approach to, say, acquiring the Wall Street Journal. In the digital world, businesses that aren’t flexible will always underperform.
2. It’s a bizarre fact of business life that companies often destroy the inherent value in the companies they acquire. The acquirer can’t help themselves; they’ve made a bunch of people millionaires, so they insist that the people are going to do it their way and stand in line. The deal will have been done at the top table and those people move on to the next acquisition, leaving the middle management salary men from HR, Corporate Communications, IT, Compliance etc to start imposing best practise. Over a couple of years they ensure the business becomes a mini me of the big company and loses the inherent culture that made initially made it such an attractive acquisition target. It requires strong leadership to ensure to continue to drive value into acquisitions and will involve unpopular decisions.
3. Ignore the zeitgeist. Facebook has revenues of $6 billion, and the IPO values the business at $100 billion. I’m sorry, I don’t think so. Ignore fashion and hype, concentrate on the fundamentals. When faced with a difficult decision I always think “would Warren Buffett do this?”
4. If you are acquiring (or being acquired,) get real information, do proper due diligence and commission your own research. Ask difficult questions about how it’s going to work after the money is banked.
5. Get wise advice. Have proper non-execs and listen to them. Don’t recruit your friends, recruit experts to whom your success matters and then remunerate them based on what they deliver.
