This shouldn't be a suprise – they have seen this coming for over 12 years! An earlier company I founded in 1999, Gigex, was a leader in digital downloads of game demos, trailers and MMOs. We believed that the network would flatten distribution of content across the Internet. We didn't focus on transactions, just getting the content into people's hands. We tracked that distribution data and provided predictive trends that video game publishers used to predict future sales. We tried to sell them cost per click ads (before Google) but they said that was "too complicated" a model and instead wanted a flat rate. They said we had the "wrong" business model – (I guess we were a little early for that one! )

So how can a $20 billion industry built on new technical innovations and 100% digital all the way along be so slow to adapt? I think its wishful thinking that their business is like any consumer packaged goods (CPG) business. Give away the razors and sell the blades. That's been the model of the video game industry for 20 years by subsidizing game consoles and making the money on software sales. Now entrepreneurs have disregarded the "channel" and have gone directly to consumers on the web, mobile platforms and facebook /social networks. This model works differently where Average Revenue per Customer, Daily Active Users, Virality and Monetization are the core metrics. This is a real business that the traditional $20 billion games industry has first ignored then begrudgingly began to accept as a reality.

I believe now the tipping point has arrived. The big game publishers must either innovate or die a slow and humiliating death. Here are 3 things they must do now to avoid the junk heap of history. There will be case studies and books written about this industry and rise of social and mobile game models. There are billions at stake and the smart innovators will win, the slow stodgy razor blade salesmen will be toast.

Many CEOs are very good and what they do yet many aren't sure how they stack up. According to Starbucks CEO Howard Schultz,  many CEOs are in fact a bit insecure that they don't know it all. Several founding CEOs I know have said they couldn't be hired for their job if they applied for it today. That insecurity is a strength if its anchored with humility and vulnerability so they can show their human side. Being the "smartest guy" in the room and know-it-all is a turn off to employees, partners and customers. For vulnerability to work, there must be trust on the team and that is built by candor within the team. My formula for building strength by leveraging vulnerability is – Candor + trust = growing respect.

These are subjective criteria and there is no CEO Olympics. We can measure a variety of outcomes, performance, stock price, M&A success however picking a good CEO is still an art. Silicon Valley VC Andreessen Horowitz partner Ben Horowitz posted their criteria for evaluating CEOs – its a very good read and I suggest checking out the full article – the key questions he raised are:

1. Does the CEO know what to do?
2. Can the CEO get the company to do what she knows?
3. Did the CEO achieve the desired results against an appropriate set of objectives?

If you are the CEO and being evaluated from the outside, what can you do to be more effective? Being open, curious and respectful of your people and incoming market information can help you insure your goals are still the best target. If there has been a big market shift, it's your call how to react. A key component in that process is being able to use your vulnerability and ask "what is it I don't know I DON'T know?" (See my earlier post on this topic)

Working with top people to discuss tough decisions is a great way to help CEOs get perspective. An outside director, business adviser or coach is a big help. I found it very useful as the cliche "its lonely at the top" was very accurate for me and other CEOs I know, especially in new technology fields where the rules are being written and rewritten all the time.

I asked, "what about option 3 – it's a blend of the 2". He looked at me and thought for a moment and said, "But I only have 2 option." "Really?" I asked. "Option 3 can solve our issue without the risks you outlined in the 2nd option." His realization forced him to reconsider the entire issue and the next day (you guessed it) he went with option 3. This was a clear example of the biggest danger: He didn't know WHAT he didn't know.

I see this often working with management teams and entrepreneurs – they think they have all the options to make a decision. Many times the true danger is what you don't know you don't know  A good illustration of this is a post I read today by NY entrepreneur Ben Pieratt, CEO of Svpply, that bravely admitted, "I have no idea what I'm doing." (See his full post here). He said "I enjoy naming products and I think I have a talent for it. I have an understanding of design that extends well past the aesthetic. …But I have zero experience or expertise in building a company"

He recognized that his biggest danger was he didn't have the depth of experience beyond his comfort zone to make the best decisions for the company. Simply, he didn't know he DIDN'T know. Many of us (myself included) have these challenges. I believe a great antidote to the this "idontknow-itis" is expanding your management bench with experienced leaders who will question your assumptions, ask you questions and explore "what-if" scenarios. Clearly, Ben knows enough to build a company that's growing, has attracted outside investors and talent yet there are clearly things he has no experience solving.

Another example is a client who assumed he needed to keep spending $100,000 each month on advertising. I challenged his belief that if he stopped advertising, sales would tank. We tried 1 month of reducing spending just 90% below the previous month's ad budget. The results were amazing – sales declined just 10%.  The reworked assumptions saved this client over $1 million in ads that went straight to the bottom line.

The key issue in both these cases is humility. Having the guts and confidence to ask yourself and others for input to guide you the right decision is the hallmark of a leader who places results ahead of ego and will learn by overcoming these lurking unknown unknowns. My advice, ask yourself "what is it I don't know I don't know". The answer can help you be much more successful.

If you think about "Black" being about profits then it's a bit counter intuitive that so many people are so focused on spending money. Consumerism is a major driver of the American economy yet I think we have reached a tipping point. Most of us have a lot of stuff, many of us have too much. Does buying more stuff, even at big discounts, drive our economy? Or is there a better way to get the "Black" back in our economy?  The statistics state 50 million people will shop on Black Friday for an average of 4 hours. Many getting up in the wee hours to stand in line for doorbuster deals for cheap TVs, computers and the like. While that's great – (and who doesn't love a smoking deal on a new flatscreen TV?) – the flip side is that we have just blown 200 Million Hours on activities that do not help the economy long term.  We have worsened our China trade deficit gorging on cheap consumer goods. I have way too much stuff, way more than I need to live a happy life of abundance. Many of us do but we still waste our most precious resource – time – planning how to buy MORE.

What if that time were spend planning to grow existing businesses, or starting a new small business or getting more efficiency out of a lagging business?  What would the return of 200 million hours focused on being profitable return to you and our economy?

My New Black Friday Plan: Make EVERY Friday a Black Friday. I don't mean go out and buy more stuff. I mean create and build on a Black Friday. Create businesses, build opportunities, profits and a future for our society. We have "Follow Friday" on Twitter, why not commit to "Entrepreneurial Black Friday" every week? If we spend 4 hours a week looking to grow, build, improve, start something new, sell more stuff and build we will help us all bootstrap our economy faster. I like this as its not a government program, doesn't cost anything to do and unleashes tremendous economic energy. Let's figure out how to spread this idea and make it happen.

1) I wish I had known that person would not perform as we had expected

2) I have wasted a lot of time, money and energy on the wrong people

3) There's got to be a better way to be sure we attract and hire the right people

I work with all my clients to assess their team and be sure current and new candidates share the proper behaviors, values and talents necessary for each company. This process has saved many clients tremendous amounts of time, money and frustration.

See this video

1.     Sell your company before it’s for sale. When it comes to acquisitions, focus is a key element that attracts buyers. When I considered how to best prepare for an exit of our VC-backed company, I adopted a focus that was clear to both our customers and the market. My company, GameDaily, created content and delivered advertisers a mainstream audience interested in video games. I huddled with my senior management team two years before the deal happened and asked, “How can we be laser-focused?” We decided to increase our commitment to the growing mainstream, while our competitors fought over the same over-served core audience. We believed we could be the leader in creating a product for people who liked games and didn't just fit the "young male gamer geek" stereotype. We focused on the audience that today is driving the social games revolution. When the Nintendo Wii became a huge success, our differentiated approach, product and customer-value proposition was a clear winner in stark contrast to our competitors. Five potential acquirers came knocking on our door because of our focus.

2.     Upgrade your team. To plan early for the acquisition, we decided to top-grade our team, incenting high performers in the content, tech/programming, client management and sales. I worked with a consultant to assess my team and matched their DISC behavior strengths, values and talents to best suit top performers with optimal roles. ( I now use these assessments with most of my clients) I let go of laggards, promoted or hired the best people, and then trained them on specific skills in my business. Having a top team was a huge benefit for us in the due diligence process, and it made the overall acquisition process easier.

3.     Prepare for due diligence BEFORE a deal arises: Many of the items on TimeWarner’s due diligence list were things we hadn’t thought about. We didn’t have audited financials, our programming code was not as well-documented as it could have been, and some of our key operations and sales processes were not written down. We hadn't prepared a neat file of our trademarks, patents and other IP. Rushing these things to get a deal done is stressful and time-consuming. I wish I had instituted an internal due diligence process, along with hiring an experienced business consultant, law firm and CPA at least two years before I went to market. I discovered that this a critical component in substantiating your valuation and asking price.

4.     Review your key client contracts: Many large firms calculate the multiples of your business based on predictable future-client contract terms. Many of our deals had “60-day-out” clauses or were month-to-month. This was a big mistake. If all our large client deals had been two-year terms or longer, we would have increased our valuation substantially. I “didn’t know what I didn’t know,” and it was a costly mistake. Looking back, I would have gladly given up a few points on price in our contract negotiations in exchange for longer-term deals, because in an acquisition, the buyer evaluates your long-term sustainable revenue streams when arriving at a valuation.

5.     Think of what you want next: When I joined AOL in an executive role in leading the build-out of the GameDaily brand, I knew I’d be there for one or two years and then I’d go onto something new. However, I hadn’t counted on all the meetings I was expected to attend. Conference calls took up almost my entire day.  I didn’t have the same flexibility to make quick progress and the environment was a lot more "slow pace" to get things done. After problems arose, I negotiated my role specifics with my boss. That conversation should have happened in detailed specifics before I joined. It would have been better to have clearly been clear and specific about details of my role in advance so everyone was clear from the outset.

The lifecycle of growing a business to the point of acquisition is fun, challenging and exciting. Having a plan in place and people who have done it before greatly increases the chance of success of the best possible deal for the company, its team and investors.

They ask:

1) Should I get VC money?

2) How much should I go for?

3) What valuation is important and what should I try to retain in ownership?

4) Should I get VC, private equity, angel or other funding?

These are all important questions and when working with entrepreneurs, we spend a lot of time focusing on what the company's goals are so we can choose the best fit for the business and management's goals. I found this presentation which frames a lot of the issues succinctly, and although its a bit over the top with sex inuendos, the content is worthwhile.

Check it out here