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Yahoo, Google, and Peanut Butter: How Can A Company Stay Small While Growing Big?

Much buzz over the Yahoo "peanut butter" memo, in which Yahoo SVP Brad Garlinghouse details how Yahoo has failed by spreading resources too thinly, like too little peanut butter across too much bread. Yahoo has serious problems. Top execs jumping ship. Stock price weakness. Too many uncoordinated initiatives. And decreasing search share. Henry Blodget notes that the Garlinghouse memo effectively accuses CEO Terry Semel of mismanagement, as the memo states Yahoo's problems come "straight from the top." Some feel Yahoo's problems are surficial because Yahoo commands the largest traffic online. Randy Befumo of Legg Mason (quoted in the New York Times):
"If you have a traffic problem, then you have a fundamental business problem because you have nothing to convert into revenue dollars," he said. "But if you have a monetization problem, which is what Yahoo effectively has, you always have options."
An aside: even that number one ranking is vulnerable: number crunching by Citigroup analyst Mark Mahaney indicates Google will surpass Yahoo as the number one most trafficked site by year's end. Yahoo's problems aren't about monetization. Yahoo's problems are about scaling. Not the technical scaling of servers, but the social scaling of people. They've morphed from NimbleStanfordStartup into BigSlowCo in 11 years. Henry Blodgett offers another spot-on observation:
COO Dan Rosenzweig has embraced the memo -- sort of. Specifically, he has assembled a task force to look into Garlinghouse's observations "over two months." Given that most of the complaints/recommendations can be grasped in 0.2 seconds, this two-month-rumination period seems an example of exactly what Garlinghouse is complaining about.
With fast radical change, Yahoo can still pull themselves out of this dive. But there's an important broader lesson here. Thinking beyond Yahoo, how large can an organization grow and still stay "small?" Richard Semler argues 150 people is the natural maximal size of human groups, and splits his companies when they reach that size. And Seth Godin ruminates that small is the new big. Another aside: Craigslist, seventh largest site on the web, has 23 employees. (23!) I'm interested in how the Peanut Butter memo is being read by the smart folks in Mountain View. After a few moments of schadenfreude, Google execs must be worrying how to avoid Yahoo's fate. Is the transformation from NimbleStanfordStartup into BigSlowCo innevitable? How can Google avoid the dangers of hubris? Yet more asides: John Battelle reported last month that Google has had to lower their hiring standards to bring in enough salespeople. Paul Kedrosky detects hints of hubris in Google's Louis Monier's comments to the London Times. Google will surpass Yahoo in headcount soon. The billion-dollar question: can Google stay "small"?

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