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Zinging Zynga

Zinged  – to be criticized in a pointed manner  (Webster’s online dictionary)

There’s lot’s of zinging going on at Zynga headquarters lately.  And it reminded me of when I was fresh out of college and got involved in a cutthroat Scrabble® Club. (My wife and kids still ridicule me for being a nerd). Decades later I was excited to sign up for Zynga’s “Words With Friends” game – essentially an online version of Scrabble®.

I admit that I got hooked all over again. (In February I was playing with a friends in San Francisco, Colorado and my hometown of Charleston while on while on Safari in Africa).

Which brings me – albeit – longwinded to today’s topic: What happens when your business has weak business muscles?  What happens when a fast growth company doesn’t have a Strong Business Core and gets wounded? Can it gather itself and bounce back off the mat and answer the bell for the second round? What is in store for a company when its core is out of whack with it business model?

A harsh truth of markets is that businesses only have a certain life span. And they are generally measured in single digits, not decades. Very few businesses can ‘get off the mat’ and get to a second round if they have taken too many body blows.

Does this sound like Zynga to you? I can tell you with an abundance of certainty that Zynga will not be in existence in 5 years let alone 10 years unless it begins to build essential business muscle.

As AllthingsD’s Kara Swisher recently commented

Zynga was optimized to rule one very specific niche—the desktop Facebook game—at a particular moment in time. When the ground shifted, its foundations crumbled. You see – The real news here is not that the company is dying, but that its inner zombie is still in control, gamely attempting to adapt an antiquated business model to a medium for which it wasn’t built.

Business velocity, especially in the online world, is at an all time high and increasing rapidly. A business like Zynga must have internal mechanisms to change quickly and adeptly to serious dynamic changes in the market. It must develop strong business muscle quicker than ever before.

So what do I mean by Business Muscle and a strong Business Core?

Simple put they are the essential added value processes, products, assets and intellectual property that generate long-term business viability. That is what is required for an acceptable return on investment. Focusing on these core items builds ‘muscle’ similar to working out in a gym. More muscle equates to more stamina and strength.

In a business context it equates to having the wherewithal to withstand the valleys and downturns of business cycles. A business core is the combination of internal human assets, intellectual property, finances and organization to help the company stick around long enough to yield a good return for its shareholders.

So let’s turn our attention to Zynga. What kind of muscle should they have been building?

  • Build up Cash reserves and create positive cash flow. Is that not the “ABC ‘s” of any company? You can’t burn through cash indefinitely. Even online startups have to generate positive cash flow eventually. Not all of them are going to be purchased before this happens.

What happened at Znyga? They blew through cash in acquiring OMG and kept a bloated staff for much too long.

This is sign of weak financial and accounting muscle.

  • Building a business model that is based on getting people to pay willingly for the company’s products. An unlimited Freemium version with little incentive to switch to a paid version is not a sign of strong business ‘sales’ muscle.

Reliance on Freemiums is a sign of very weak sales muscle that denotes lack of confidence in the real value proposition of the company.

  • Create a foundational base for the company (company’s products or services) that is quickly adaptable to changes in online usage (computer versus mobile devices)

Zynga exhibited weak business muscle by hitching itself too long to Facebook.

Basing your business on someone else’s muscle if super dangerous.

  • Have a full pipeline of new products and services. Understanding the ephemeral nature of games and entertainment would warrant a higher emphasis on this.

We live in a world of short-term attention spans. There is an consumer expectation of something new.

Zynga exhibited weak business muscle by reliance for too long and too heavily on two games – Farmville and Words     with Friends.

  • Grow an organization that is not dependent on one or two ‘star’ players.

Zynga’s CEO and founder exerted ultimate control that often leads to laziness in the ranks. All ‘star’ players eventually have diminishing contributions. Building a business based on process versus personality is a stronger model.

The view that all businesses can and should continue forever into the future is a false one. Businesses are developed to maximize returns on investment. For most ventures this means being around long enough to convert human, financial and intellectual capital into added value.  Without sufficient longevity this rarely happens. Without good business muscle this almost never happen.

Maybe the lesson is that companies built to capitalize on the fad of the moment should be constructed from the beginning to be small, lightweight and temporary, similar to a forward operating military base. Bare bones and ready to move on to the next deployment. That way, when the moment passes, they can fold up neatly and everyone can move on, rather than leaving wreckage strewn across the business and financial communities.

Maybe that’s how companies like Zynga will stop getting zinged.

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