Blame Short-term Focus for Facebook’s Fall

Mark Reilly
Managing Editor- Minneapolis / St. Paul Business Journal

Facebook and its social-media cousins could have avoided the public-markets minefield they walked into — and saved investors billions of dollars in losses — had they focused more on building their businesses and less on blasting through IPO records, says former Medtronic Inc. CEO Bill George.

George, who after leaving Fridley-based Medtronic has become a professor of management practice at Harvard Business Schooloffers his take on the Facebook IPO debacle — and what he calls a second technology bubble — in a post on The New York Times DealBook blog.

Facebook — as you surely know if you were unfortunate enough to buy in at its IPO price of $38, had a big drop again Thursday as insiders sold off shares. It’s now trading below $20. (Other recent IPOs, like Zynga and Groupon, are also way down).

But, George notes, the social media site is still growing in all its core metrics: new users, ad revenue and income.

“In a prudent financing environment, investors would be banking on Facebook’s future instead of wondering why it had lost so much of its I.P.O. value,” he writes.

So what’s the problem? Short-term Wall Street thinking, he argues, which encourages outsized thinking and provokes volatility. George argues that entrepreneurs looking to build for a long-term should stay away from the market until they build “diverse and stable revenue streams.”