Evan Spiegel is the skunk at the founder’s party
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Jennifer Saba
NEW YORK, Sept 13 (Reuters Breakingviews) -Snap SNAP.N architect and boss Evan Spiegel gets points for frankness. In a blog post published last week, he bluntly lays out the reason for the investor chill that has dogged his $16 billion social media company’s stock price: slower advertising growth than its peers. He also provides the counter argument to another missive recently making the rounds in Silicon Valley that champions the virtues of founder-led companies and leaders who keep a tight grip on the wheel. Spiegel serves as an example of a master mind who could benefit from more managerial suits.
Y Combinator founder Paul Graham published a memo in September that suggests hiring outside executives is the kiss of death for pioneers who delegate duties to “professional fakers.” He draws upon the experience of Airbnb ABNB.O creator Brian Chesky, who at first followed the conventional wisdom to “hire good people and give them room to do their jobs” to disastrous effect. But by swooping back in and keeping an eagle eye on things, Chesky changed the course of the $75 billion home-sharing network as evidenced by Airbnb’s cash flow. Spiegel fits into the mold: along with co-founder Robert Murphy, he has absolute voting power and calls all the shots.
Spiegel’s memo shows he has necessary self-awareness, though that’s hardly a consolation for shareholders who have seen value incinerate 40% so far this year compared to the S&P 500 Index’s .SPX 15% rise. Spiegel blames the issue on the “ongoing evolution” of the ad business. Snap is moving away from depending on larger brands—like Nike NKE.N and Coca-Cola COKE.O —to those of small and medium-sized marketers who spend more consistently and make up a larger pool of dollars. But shares of competitor Meta Platforms META.O, which also relies heavily on advertising, are up 45%.
Trouble is, Meta is an impossible-to-beat competitor. Its platforms Facebook and Instagram long ago made a play for smaller advertisers, with much success. Mark Zuckerberg’s $1.3 trillion company has also made several attempts to copy and paste Snap’s best ideas. For example, Meta’s partnership with Ray Ban owner EssilorLuxottica ESLX.PA to make smart glasses has exceeded expectations.
Graham’s “Founder Mode” missive takes startups to task for farming out responsibilities. But there are plenty of cases where founders stepped down, and success continued. Uber Technologies UBER.N Chief Executive Dara Khosrowshahi restored order and generated profit to the parent of the ride-sharing app, despite taking the reins from creator Travis Kalanick. Apple AAPL.O is up 15-fold since Steve Jobs stepped down in 2011. Spiegel, too, may need more outside help after 13 years helming a business that is still struggling.
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CONTEXT NEWS
Snap co-founder and Chief Executive Officer Evan Spiegel wrote a post on Sept. 3 explaining that the social media company’s share price lagged the market because advertising revenue was growing slower than Snap’s competitors.
“The growth of our digital advertising business is one of the most important inputs to our long term revenue potential, and investors are concerned that we aren’t growing faster,” he wrote.
Investor and Y Combinator co-creator Paul Graham wrote a blog post in September arguing for the merits of startup founders staying involved in the business rather than switching to hiring outside managers and becoming more hands off as the company grows.
Graphic: Meta's shares outperform Snap's https://reut.rs/3XojCR4
Editing by Lauren Silva Laughlin and Sharon Lam
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