The Metabolism Metaphor

October 27, 2008

The New York Times’ article “To Survive, Net Start Ups Slow Their Metabolism” is one of those news stories that summarize a trend and give us a metaphor to guide our thinking. You can read for a while the full text of the story here. NYT’s articles may require registration or a fee to view after a story’s initial publication. The author is Brad Stone with assistance from Claire Cain Miller. For me, the most important item in the article is the metaphor of slashing staff in order to slow down a new venture. Almost as interesting to me was this comment:

The only certainty in Silicon Valley is that survival is quickly becoming more challenging. The growth in online display advertising, which helps fuel the new Internet ecosystem, is declining. Venture capitalists and other investors in start-ups, like hedge funds, are cutting back. The market for initial public offerings remains closed and potential acquirers — Google, Yahoo and the rest — are deep in their own problems. Many entrepreneurs and deal makers agree that a shake-out is indeed coming. Venture capitalists have begun preaching frugality, urging the start-ups they have invested in to cut costs and get profitable. Their advice shares themes: cut employees, do not count on raising more money and move quickly.

These actions have been well document. The Yahoo staff reduction made headlines when it was a rumor not a fact. The Hewlett Packard job chop is in the neighborhood of 20,000, but it hasn’t had the visibility of Yahoo’s retrenchment.

Do we need reminding that cutting funds, reducing staff, and spending less is prudent when credit is not readily available? The New York Times thinks we do need reminding. Judging from the flurry of comments about this article, many other people agree. We have a new metaphor, and I want to jot down my thoughts before they slip away:

  1. I am troubled by the metabolism metaphor. Without sufficient nourishment, perhaps weaker organizations will die. In the Darwinian environment of information, perhaps this is a good thing. Certainly the individuals affected are adversely affected. The larger benefit is that the survivors survive. I need to think about this more because the speed with which an organization fails may not change its chances for survival.
  2. The euphoria of the early years of the Internet fizzled when business models were in short supply in the 2000-2001 period. Exogenous shocks accelerated the thinning of the herd. Companies surviving included Amazon and Google. Now another round of thinning seems to be underway. The metaphor of metabolism does not stretch to cover this winnowing and no belt tightening will slow what seems to be happening to good ideas that can’t generate cash.
  3. Metabolism strikes me as an organic process. The problems of GM and Chrysler have broader economic implications than cut backs in smaller firms with little or no footprint outside of their investors’ sneakers. GM and Chrysler face problems that defies a metaphor. In my opinion, I think that Microsoft’s online initiative to “catch” Google and Yahoo’s decline present challenges for which we need a different metaphor.

I am no poet, and I don’t have an easy way to relate the problems facing information centric companies with a clever analogy. When I think about the dominance of Google, my hunch is that the companies facing metabolic problems may be saddled with a flawed business model and technology (in its broadest sense) that is out of step with the opportunities that do exist.

The problem for me is that the type of shift that Google represents has not been fully understood and internalized by organizations within the content processing sector and outside of that sector. The basic management policy of reducing transaction costs and making rapid innovation a matter of low incremental cost with short product and service release cycles is lacking. In the emergent commercial world, companies lacking this management philosophy cannot be saved by a metabolism change. The companies need something more significant, perhaps the management equivalent of genetic engineering?

Stephen Arnold, October 27, 2008

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