Why Zuckerberg Needs to Step Up -- or Step Aside

Before Facebook (Nasdaq: FB  ) debuted on the Nasdaq, I said that I thought the company would be a good investment over a two-year period. So far, it has floundered. That's fine, and I expected that it would do so for a while. But one of the main keys to Facebook's success is the ability of the company to grow from its current point under strong leadership. We may be at a turning point where Mark Zuckerberg needs to step up or get out of the way. Luckily, he's got some good leads to follow, regardless of which option he chooses.

Getting out of the way
When Zuckerberg founded Facebook, he had the luxury of hiring anyone and everyone he wanted to. The company made no money, so there was none to manage. The entire operation could be run out of my living room (if I had a slightly faster Internet connection). Those days are so far gone that even the sharpest eyes can no longer spot them. Facebook is a huge beast of a company, and it has a whole new set of needs.

Start by just looking at the employee count. According to its latest quarterly filing, the number of employees jumped from 2,661 in June last year to 3,976 this June. Those four thousand people are now working at a company that generated $1.2 billion in its last quarter. My living room is probably now inadequate for a meeting of Facebook employees named Phil who make over $100,000 a year. That explains why Zuckerberg has hired the world-renowned Frank Gehry to design an expansion to the company's campus, which will be constructed next year.

In short, Facebook is a big company and Mark Zuckerberg is woefully inexperienced. He's made some smart hires, including Sheryl Sandberg as COO, but he might need to go a step further. In 2001, Google (Nasdaq: GOOG  ) founders Larry Page and Sergey Brin realized that their youth and inexperience was going to hurt the company. To make up for it, they had the good sense to bring in the more experienced Eric Schmidt as CEO. Schmidt brought both general business and technology expertise to the table, and made Google better than it ever could have been under the Stanford neophytes who dreamed the whole thing up.

Zuckerberg has managed to create a phenomenal product, and has brought it this far. He doesn't need to step aside completely, or even meaningfully, for the business to thrive. It may be that he just needs to scoot over a foot, and let someone with more business savvy take the reins for a while.

On the other hand...
There is another option. Remember Amazon.com (Nasdaq: AMZN  ) ? Founder Jeff Bezos has had a similar path to both Facebook and Google. Start small, focus on one thing, grow into a behemoth, and take over the world. But Bezos has never relinquished his control. Forbes, and just about every other news organization, has compared him to Steve Jobs (without the failure and triumphant return part). Maybe Zuckerberg can copy that model instead.

It's going to take a lot of work to get in shape, though. As it stands, I have a hard time imagining Zuckerberg saying, "A company shouldn't get addicted to being shiny, because shiny doesn't last," as Bezos did in a Wired magazine interview last year. That was in response to being told that Google considered Amazon one of the four most important tech companies in existence.

Regardless of his current level of sophistication, I think Zuckerberg does have a lot in common with Bezos. They both believe in their companies, with the emphasis firmly on the word "their." That founder-owner mentality is one of the reasons that Zuckerberg sought out Peter Thiel instead of easily accessible venture capitalist money. But in order to make the move to a more successful model, Zuckerberg will have to find ways not just to have a vision for the future, but to make those visions a reality, as Bezos has done time and time again.

The bottom line
There is a clear choice to be made at Facebook: Zuckerberg can give the CEO position over to a more mature business leader, or he can become that leader himself. I still believe in the long-term prospects for Facebook, assuming one of those two things happens. If neither does, and if ego gets in the way instead of facilitating leadership, then Facebook is going to have a long, hard road ahead of it.

Luckily for investors, we don't have to pull the strings. We can watch the hard decisions get made from the comfort of our living rooms. You can get a leg up on the rest of the pack with the Fool's special reports on Facebook and Amazon. They give all the pros and cons of investing with Zuckerberg and Bezos, and they're updated throughout the year as new breaks.

Fool contributor Andrew Marder does not own any of the stocks mentioned in this article. The Motley Fool owns shares of Facebook and Amazon.com. Motley Fool newsletter services have recommended buying shares of Amazon.com, Facebook, and Google. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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  • Report this Comment On September 05, 2012, at 10:58 AM, es330td wrote:

    I think this author needs to stop and think about what he is saying. Zuckerberg set this company up so that he controls 57% of the voting power. This was known from the day the IPO was filed so anyone foolish enough to buy a stock wherein the common shareholder has no voice has to deal with where the price goes. He said from early on his goal is not to make money, so it isn't Mark that needs to step up or step aside, but the investors whose opinion simply does not matter who need to decide if they want to go on this ride with Zuckerberg or not.

  • Report this Comment On September 05, 2012, at 11:57 AM, XMFScott wrote:

    I'm pretty sure that notwithstanding 57% ownership, that Zuckerberg has a legal and moral obligation to maximize value for all investors. He's got discretion in judgement about how to do this to be sure, but that judgement and discretion should be rooted in value maximization.

  • Report this Comment On September 05, 2012, at 7:31 PM, toml513 wrote:

    I think Mark Zuckerberg telling media that he will hold on to the stocks for 1 year is just a publicity stunt to calm the panic investor before another storm…He will probably dump his in less than a year.

    Just imagine that if the users find another better social media and jump ship like they did to Myspace with Facebook… I think Facebook is going to be like MySpace, eventually becoming irrelevant and nonexistence.

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