How Twitter's Mating Dance Could Backfire

SMITH BRAIN TRUST – Just a few weeks ago, Twitter had a multitude of potential suitors, with Google, Disney and Salesforce all said to be considering bids to acquire the mainstay social media platform. Then, one by one, those suitors appeared to lose interest. Liz Sara, chair of the Board of Advisors for the Dingman Center for Entrepreneurship at the University of Maryland’s Robert H. Smith School of Business, has been watching the drama play out at Twitter. An angel investor and founder of the consulting firm Best Marketing LLC, Sara shares her views with Smith Brain Trust.

SBT: Chief executive Jack Dorsey has been under pressure to demonstrate that the short-form commentary social media platform can attract new users and new revenue — whether with live-video streaming or other initiatives. With live-video, Twitter has forged partnerships to stream tweets and video side-by-side during 10 NFL games this season, the Nov. 8 election and some entertainment events. Response so far has been modest, but not discouraging. On the other hand, a growing chorus of people have been criticizing Twitter for not cracking down on so-called trolls — users who harass other users with hateful, threatening or degrading comments. (Some even suggesting that the odious undertow of the network is what repelled its potential suitors.) The network still lags some other social giants among teens, as seen here. Is this cause for worry? Is Twitter doing enough to innovate? What's the best way for a company like Twitter to innovate?

SARA: Twitter needs to decide what it’s going to do right now: whether that means staying on the path to being acquired … or growing the company. Those strategies are not easily accomplished simultaneously, as they often require opposing actions. In the former, expense cuts and staff reductions are common (and we’ve all heard rumblings about potential layoffs as high-profile suitors have come and quickly gone.) In the latter, ramping up investments is needed — in talent, infrastructure, innovation and alliances (such as the recent live-streaming deal with the NFL.) So from the outside, it looks like both paths are under way, which must be creating chaos on the inside.

SBT: Indeed. These can’t be easy days for the company. In the second quarter of this year, Twitter's user base expanded by a meager 1 percent, to 313 million, and its revenue growth dropped for a worrying eighth consecutive quarter, to less than 20 percent. The chaos you mention, what do you think it looks like on the inside?

SARA: On the inside is a workforce that has already withstood a revolving door at the top — five different chiefs over 10 years. It’s no wonder that there isn’t the clear and consistent vision for growth that we have witnessed at the other tech giants. And now that same workforce is withstanding the pressure of working for a company on the auction block … and wondering whether they’ll still have a job when it’s all over. That surely doesn’t encourage innovation. Worse yet are the hits to the brand and stock price that have come as a result of the potential acquirers that have walked away during these past few weeks. That surely doesn’t spark new talent to apply for jobs … or potential new partners to do deals. The environment for creating and implementing growth strategies as a result of all that’s transpired: lousy.

SBT: What advice do you have for Jack Dorsey?

SARA: Best to focus on a sale. Twitter is not new to acquisition offers. Back in 2008, a steady stream of notables came calling. Zuckerberg. Page. Ballmer. But each time back then, the answer was "not for sale."

SBT: The prospect that Twitter will be forced to go it alone has been weighing on Twitter shares, which have dropped by about 30 percent since the suitors began losing interest earlier this month. (With forecasters estimating it has further to fall.) Some say the lower share price could make the social media giant a better bargain for potential acquirers. Is that your view? Or might buyers be put off by the fact that three big companies explored a deal, but ultimately walked away?

SARA: The question is: So now what? The lower stock price might actually nudge some potential acquirers that have been waiting on the sidelines to come forward. With a lower price tag, a company sale may be more attractive and even more likely. In this next round, Twitter would be wise to conduct the mating dance out of the public eye and off the world communication stage it created. 

SBT: Are there other key lessons here?

SARA: What should a first-time tech entrepreneur take away from all this? As with all things related to capital, borrow money when you don’t need it; sell when you don’t have to.

Liz Sara, the founder of Best Marketing LLC, teaches business-to-business marketing to MBA students at the University of Maryland’s Robert H. Smith School of Business. She is an angel investor, a member of the Dingman Center Angels, and the first female chair of the Board of Advisors for the Dingman Center for Entrepreneurship.