Final Ferrit: The governance failure

Part four of  a four part take on the end of Ferrit. We started with Market Space, then  site idea and execution, and business economics. This is hopefully the last Ferrit post, but the most important in this series

The Governance Failure

There were failures at a number of levels from Telecom, including poor strategy, poor execution, but to me most of all it was a failure of governance.

Strategy
The strategy failure was at the highest level – and not only in the way Ferrit addressed the perceived space (see above). The failure was at clearly articulating and following a vision of “What does Telecom do“. The answer is that Telecom NZ delivers telecommunication (& IT) services, and until they can demonstrate that they can do that well, anything else is a distraction.

The launch of Ferrit meant that Telecom moved focus and resources away from its core broadband and mobile business lines, and so NZ slipped even further behind the rest of the world. It is heartening to see in the press release that the main reason for Ferrit closing was to move back to the core business.

Branding
The branding of Ferrit was brilliant as a case study in ineffective branding. Beyond ineffective, Ferrit’s brand equity managed to plummet from day one. From the choice of rodent name, to the sleazy and intelligence insulting advertising, to the Ferrit.com website which was a porn site domain that Telecom was forced to purchase. Perhaps they could sell it back now.

Meanwhile New Zealanders are smart, and can see through branding campaigns that seek to portray an image that is clearly inconsistent with reality. Telecom itself suffered from this approach for years, and Ferrit was another example of just what not to do.

Simply put – Ferrit may have done everything they could to create a poor brand, but the failure to gain traction was caused by the poor site and flawed strategy, not by the poor brand.

It’s easier to describe how successful web (and other) companies go about building credibility, or brands. Trade Me, Google and Apple all followed a similar path. They start small, they make a great product and they grow slowly and organically through word of mouth. Only after they have established a strong beach-head do they contemplate an advertising campaign.

Torpedo7 is a Kiwi success story that has out-performed Ferrit by using this method. The bicycle and sporting goods site usability is fantastic, their fulfillment stunningly quick and their advertising spend is very hard to see. The result is traffic to their sites that is larger than Ferrit’s, and no doubt revenue figures that dwarf Telecom’s folly.

Ferrit turned this approach upside down, launching a wildly extravagant and misguided campaign months before the site was able to do anything useful. Anybody that visited the site had a poor experience and thus moved on, often never to return. By the time the site became mildly useful it was too late – the brand was in ruins.

Execution
Telecom took a corporate approach to the development and launch of Ferrit. They did the equivalent of buying and adapting SAP rather than just using Xero. That’s not how things work in the web-world.

They could have done it well – here’s how:

• The leader of the team needs to be someone that completely “gets” the internet, someone that had no legacy power internally and someone that understands the technologies.
• The number of staff needs to be tiny – obeying the two pizza rule, where two pizzas can feed the development team.
• The software should be open source, or developed internally using the newer tools and never outsourced.
• The marketing team should not exist until well after the soft launch and early market acceptance, (they just spend money) and external advertising agencies should never be contacted in the first few years.
• The budget should be small – making the team work smarter with what they have and preventing any expensive follies.
• The location should be away from the corporate parent (it was), and in a lean environment (it was not)
• The team should be interconnected with the local web community, be that on the latest social networking tool, conferences such s Webstock or simply through blogs.
• The early scope should be small, with more features (and dollars) added only after the concept is proven

Telecom and Ferrit failed on all of these levels. Sadly I’ve seen corporates fail consistently at building their own businesses – Pfizer’s recent laying off of research staff was an admission that they are just too big to innovate, while Trade Me is the classic example of a start-up taking away the corporate incumbents’ businesses.

Governance
This is where I am truly perplexed, and concerned not just for Telecom but also for many other large corporate businesses in New Zealand. The total failure of Ferrit was obvious to any external observer right from the start. How could the leadership of Telecom let this happen? And if this was really was a pet project of the then CEO, then how did the Board of Directors let this start and keep going for so long?

Was there anybody on the board that gets the internet? Was the board able to reconcile the tens of millions money being poured into Ferrit with their fiduciary obligations to shareholder to maximise value? Was the board able to reconcile their obligations to other stake-holders with not only Ferrit’s poor performance but the resulting internal distraction from the core goals?

Who was asking the hard questions? Telecom.co.nz has pages and pages of corporate governance material on their website, but I can’ help but observe the board failed dismally in their obligations to shareholders.

All is not lost – they did exercise their biggest power and bring in Paul Reynolds as CEO. He is slowly turning around Telecom, and is doing it well. We could argue that the Ferrit closure happened about a year to late, but really it is a small amount of money to the giant corporate.

Paul has managed to change out his management team and now drop Ferrit without acquiring a nickname such as “Neutron Jack” or “Chainsaw Al”. Credit to him for that, but I hope that his current board is asking him the tough questions.

It’s a sad interlude for Telecom that needs to pass into history. The great news is that this closure is yet another sign of a resurgent Telecom that puts customer needs first and understands that shareholders benefit when you create value for all.