CEOs Love Reinvention Stories; Shareholders Hate Them
Dear Reader,
What a year Meta is having - the share price has nearly doubled since January 4.
Does this mean that Mark Zuckerberg’s costly bet on the metaverse has finally delivered the company’s much-needed new growth engine?
Not even close.
In fact, the stock is up because Zuckerberg has finally taken off his Oculus headset and returned to the real world, in which Facebook is a cash cow that can be milked indefinitely, so long as he doesn’t spaff all of the profits on his pet project.
It took a while for him to come to this realization, but better late than never.
His journey towards the getting of wisdom is one that CEOs and aspiring CEOs should study closely because it reveals a lot about the disconnect in perspective that often emerges between executives and their shareholders – and why some survive these disconnects while others don’t.
One of the fundamental tools in strategy is the growth-share matrix. It looks at the different lines of business within a company as a portfolio to be managed, by arraying them on a simple two-dimensional chart.*
If you have a business that has high growth and high market share, that’s a rare and beautiful thing and it warrants investment.
Where should that investment come from? Why from the cash cow, of course. This is a business with a strong market position but low growth. It has achieved maturity, meaning that no amount of additional investment can alter its growth trajectory.
Done well, this can extend the growth runway of the company, like so:
In this example, by using the profits from a mature business to invest in a growing one, the company as a whole is able to sustain growth even as what once was its core business goes into decline.
This happens absolutely all the time in business.
Think of The Coca Cola Company, whose business was once entirely dependent on high sugar sodas.
Over time, the company reinvested profits from those product lines first into diet varieties of the same beverages (thus launching the generation-spanning attempt to get down from one calorie to zero) and then into fruit juice, new age beverages, functional beverages, and water.
So why can’t Zuckerberg take the profits from Facebook and plow them into the metaverse?
Because there is a difference between reinvestment and reinvention.
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