buzzing zynga

Zinged: to be criticized in a pointed way (Webster’s Online Dictionary)

There’s been a lot of fuss at Zynga headquarters lately. And he reminded me of when I had just gotten out of college and got involved in a fierce Scrabble® Club. (My wife and kids still make fun of 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 admitted that I was hooked again. (In February I was playing with some friends in San Francisco, Colorado and my hometown of Charleston while on Safari in Africa.)

Which brings me, albeit a bit long, to today’s topic: What happens when your business has weak business muscles? What happens when a fast growing company doesn’t have a Solid Core Business and gets injured? Can he recover and bounce off the mat and answer the bell for round two? What awaits a company when its core is out of step with its business model?

A hard truth about markets is that companies only have a certain useful life. And they are usually measured in single digits, not decades. Very few companies can ‘get off the mat’ and make it to a second round if they have taken too many body shots.

Does this sound like Zynga to you? I can tell you with great certainty that Zynga won’t be around in 5 years let alone 10 years unless it starts building essential business muscle.

As Kara Swisher from AllthingsD recently commented

Zynga was optimized to rule a very specific niche, the Facebook desktop game, at a particular time. When the ground moved, its foundations collapsed. You see: the real news here isn’t that the company is dying, but that your inner zombie is still in control, valiantly trying to adapt an outdated business model to a medium it wasn’t built for.

Trading speed, especially in the online world, is at an all time high and increasing rapidly. A company like Zynga must have internal mechanisms to adapt quickly and skillfully to serious dynamic changes in the market. You need to build strong trading muscle faster than ever before.

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

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

In a business context, it equates to having the means to withstand the troughs and downturns of business cycles. A business core is the combination of internal human assets, intellectual property, finances, and organization to help the company sustain itself long enough to generate a good return for its shareholders.

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

• Accumulate cash reserves and create positive cash flow. Isn’t that the “ABC” of any company? You cannot burn cash indefinitely. Even online startups have to generate positive cash flow eventually. Not everyone is going to buy before this happens.

What happened in Znyga? They blown cash on the OMG acquisition and kept a bloated staff for too long.

This is a sign of a weak financial and accounting muscle.

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

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

• Create a fundamental foundation for the business (company products or services) that quickly adapts to changes in online usage (computer vs. mobile)

Zynga exhibited weak business strength by tying itself too long to Facebook.

Basing your business on someone else’s muscle is very dangerous.

• Have a complete portfolio of new products and services. Understanding the ephemeral nature of games and entertainment would warrant a greater emphasis on this.

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

Zynga exhibited weak entrepreneurial ability by relying heavily on two games, Farmville and Words with Friends, for too long.

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

Zynga’s CEO and founder exercised maximum 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 false. Businesses are developed to maximize return on investment. For most companies, this means staying in the market long enough to convert human, financial and intellectual capital into added value. Without sufficient longevity, this rarely happens. Without a good business force, this almost never happens.

Perhaps the lesson is that companies built to capitalize on the craze of the moment should be built from the ground up to be small, light and temporary, similar to a military forward operating base. Essential and ready to move on to the next deployment. That way, when the moment is over, they can be shut down neatly and everyone can move on, instead of leaving remnants scattered throughout the business and financial communities.

Maybe this is how companies like Zynga will stop being criticized.