January 31, 2012

Leadership Challenges Expected as Facebook Prepares for Massive IPO: As Social Giant Readies for Possible $100 Billion Valuation, Zuckerberg Faces Huge Task of Balancing Incentives and Retaining Top Talent

It could be a huge week for Facebook, which is expected to file for its highly anticipated initial public offering in the coming days. The IPO, which is expected for the second quarter, could raise as much as $10 billion and could value the social network between $75 billion and $100 billion, the Wall Street Journal is reporting. Because of its profound imprint and unarguable dominance of the social genre, anything less than $75 billion would be seen as a disappointment. As you'd expect, such expectations will make the challenges for head honcho Mark Zuckerberg that much harder — when even a modestly successful tech start-up goes public, it means a host of extraordinary leadership demands, from wrestling with how to reward employees so the stock price doesn't take on too much weight, to struggling with retaining overnight millionaires who have been critical to the company's success thus far. Facebook's IPO, though, is on such a grand scale — if it raises $10 billion, it will be the fourth largest in U.S. history, dwarfing the $1.9 million Google raised in 2004 — that it could very well exacerbate the challenges for Zuckerberg and his team. Zuckerberg seems cognizant of the task ahead of him — he said recently he worries about the short-term focus of Silicon Valley enough that if he were to start Facebook again, he'd consider doing so in Boston — and the CEO appears to be readying himself with a realistic outlook for what he faces as a public company. Company executives have been practicing with dummy scripts for earnings conference calls. Its CFO has been professionally auditing its financial statements. And Zuckerberg is shifting his own focus as CEO toward the much longer term. As he told the Journal, "We want to be operating in a way that we're working toward this longer vision of where we think the world should be." Still, the most critical thing Zuckerberg will need to do to keep Facebook from feeling too big too fast will be setting up the right incentives and retaining some of his best veteran employees. Some will leave, without question, emboldened by their massive riches and ready to take on new challenges. Those who are motivated to stay will do so because they continue to feel challenged, appreciated and motivated by a culture that remains focused on innovative products rather than the whatever-the-price profits, the Washington Post reports.

In recent years, Zuckerberg has brought in executives like Sheryl Sandberg from Google and Ted Ullyot from AOL Time Warner to help with the company's maturation while keeping it from losing its startup feel. When he hired contractors to renovate a 57-acre campus for the company's employees to move into, he retained the company's no-office, unpartitioned spaces and chose architects and designers who could give the space a "casual eclectic," "random," and "idiosyncratic" feel. With just 3,000 employees, Facebook is relatively small for the $4 billion in revenues it brings in, and the new campus can only scale to 3,600 without getting approval from the local city council. If Zuckerberg is forced to scale (at least in headcount at headquarters) just a little more slowly, that could help Facebook retain a smaller feel. There is nothing quite like extra layers of management and needless levels of hierarchies to make a place feel corporate and slow, the Post reports.

Keeping control of his staff will be Zuckerberg's most monumental challenge. Once there's a stock price to follow — especially in a milieu like Silicon Valley where stock options have long been a measure of one's worth — distracting people from it will be extremely difficult. Zuckerberg will need to make sure that people are measured and evaluated on any and all metrics — innovative new products, revenues, profits, employee satisfaction — that keep the company performing as efficiently as possible. He'll just need to make sure the stock price is not one of them, reports Post writer Jena McGregor.