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August 22, 2018 - Bloomberg Business Week

Nobody Trusts Facebook. Twitter Is a Hot Mess. What Is Snapchat Doing?

By: Sarah Frier

On the second floor of the new headquarters of Snap Inc. in Santa Monica, Calif., is a room dedicated to helping employees open up. It’s round and lined with potted plants. “Speak from the heart,” reads a framed sign on the wall. “Listen from the heart.” Employees show up in groups of about a dozen, sit cross-legged on black cushions, and take turns with the “talking piece,” a heart-shaped purple geode that gives the bearer the right to confidentially share deep thoughts.
This is the inner sanctum for what Snap calls “Council,” a sort of New Age corporate retreat that uses a technique Chief Executive Officer Evan Spiegel learned in childhood. It was also where I found myself on a Friday morning in July. Council meetings, I’d been told by the company’s communications chief, are “sacred.” They’re also a real-life example of what Spiegel wants people to do with his smartphone app, Snapchat: share intimately, without fear of judgment from the outside world.
As an app, at least, it’s a compelling idea. Snapchat’s disappearing posts, Stories, as they’re known, are wildly popular with teenagers, especially in the U.S.—so popular that Facebook Inc. has made the concept a core part of its own services, most notably Instagram. Unfortunately, Snap is having trouble capitalizing on the opportunity.

This should be Spiegel’s moment. Facebook is in the middle of a series of privacy-related scandals. Twitter and YouTube, Snapchat’s other big competitors, have seemed overrun by some combination of Russian bots, ISIS recruiters, and/or conspiracy theorists. In this context, Snapchat would appear to be well-positioned as an alternative. There’s no fake news, and the company’s emphasis on disappearing content means it stores much less data than its ­competitors do.
And yet, daily usage has started to decline. Late last year, Spiegel redesigned Snapchat to get people to spend more time on it. Users hated it. In early August, Snap reported that its audience had fallen from 191 million daily users in the first quarter to 188 million in the second. That’s alarming because Facebook, which is more than seven times bigger, is still growing. Instagram Stories, essentially a copy of Snapchat, has more than 400 million daily users.
Investors have come to see Snap as a smaller, unprofitable Facebook rather than a new idea that should be judged on its own merits. Spiegel says these problems have been caused in part by lack of communication, which has created confusion inside and outside the company. “If you don’t share who you are with people, you can’t be upset when they have misperceptions,” he says.
That’s why Spiegel, 28, agreed for the first time to let an ­outsider into Council. He learned about the concept while attending Crossroads School for Arts & Sciences, a prep school in Santa Monica. Today, Snap has six full-time and eight part-time Council facilitators among its 3,000 employees. They presided over 785 sessions during the first half of 2018. All employees do Council on their first day of work; Snap’s directors do it before quarterly board meetings.
The meeting I attended started with an employee lighting a candle in the center of the circle to dedicate the session to a cause, and then proceeded with a series of free-­association prompts. A moderator asked us to tell a story about our names or a memory related to summer. Outside the round room, morale at Snap has been low recently. Inside it, employees were connecting with each other, at times emotionally, about their childhoods, hopes, and fears.
Council etiquette prohibits me from telling you what ­others shared, but during one of my turns with the geode, I told the group an embarrassing childhood story about getting sick during a family beach vacation. They also now know a legend about my great-grandmother slaughtering a rooster.
Council itself is a bit like Snapchat in that it’s all about sharing personal thoughts privately. But a compelling concept is not the same as a successful business. Spiegel knows this and says he’s willing to let go of some of his quirks. That will mean unreservedly embracing the basics of running a ­public company.

Much of the blame for Snapchat’s troubles has fallen on Spiegel. For four of the six quarters since its March 2017 initial public offering, Snap has posted revenue numbers that missed estimates. In that time, Spiegel has also lost or replaced his heads of ­engineering, finance, hardware, legal, product, and sales.
Snap employees complain about his dictatorial management style and penchant for secrecy. In January the company’s chief counsel sent around a memo threatening jail time for employees who leaked proprietary information to the press. It was a strange threat because, according to several Snap employees, the bigger problem was that they didn’t have much information in the first place. That same month, workers were told they wouldn’t be receiving cash bonuses because the company didn’t meet its goals. They hadn’t been told what the goals were.
To turn all this around, Spiegel has embarked on a self-improvement project. A little more than a year ago, he hired a well-known management coach, Stephen Miles. Spiegel also conducted an anonymous survey of employees that included a question asking how he, as their leader, could better serve them. The responses were brutally honest. Overwhelmingly, they asked for one thing: to know what was going on.
“Each team had their own verticalized set of goals,” Spiegel says. In other words, members of different teams rarely talked to one another, a reality that had been built into Snap’s anti-corporate culture. When the company went public at the beginning of 2017, its headquarters was spread out over two dozen small buildings and houses scattered around Venice, Calif. (Some of the Snap offices had beds in them to comply with zoning laws, contributing to an atmosphere that could feel unprofessional.) There were no companywide gatherings, except for social functions such as lavish parties for Halloween and New Year’s Eve, which came with their own code of secrecy: no photos.
Spiegel pins all this on his own shyness. He says he feels “uncomfortable or intimidated speaking to large groups.” Miles told Spiegel, in effect, to grow up.

Last December, for the first time, Spiegel gathered his senior managers to discuss priorities, which were printed in large font and arranged on the floor of a conference room. The company also started a channel on Snapchat for employees to update them about changes. In March it began hosting monthly all-staff meetings.
During a meeting in July, with five executives onstage, employees asked what Snap would do to retain people after recent cuts of hundreds of jobs. Jason Halbert, Snap’s head of human resources, said the company was getting better at measuring and rewarding the best employees. Tim Stone, the new chief financial officer, reiterated the need to motivate staff to “bleed Snapchat yellow.” Improving employee performance is the top priority for 2018, staff were told, followed by boosting daily users, revenue growth, and time spent on the app. Priority No. 5: building a ­sustainable business.
In that meeting, Spiegel let his executives do most of the talking, but he piped up when someone inquired about Snap’s mission statement, which is to “contribute to human progress by allowing people to express themselves.” “What do we mean by ‘human progress’ in our mission?” an employee asked. “How do we explain this externally?”
Spiegel flopped his microphone back and forth as he gathered his thoughts. “I think one of the things that’s been really helpful in maybe the past six months or so is that the contrast is starting to become more clear between our company and the other companies in technology,” he said. “What I think that people are starting to see is that other companies really are trying to make as much money as possible and really don’t care how that happens.
He didn’t say the word “Facebook,” but the reference was obvious. Snap employees see Mark Zuckerberg’s social network as the villain in their virtuous fight against vanity and virality. Unlike Facebook, nothing on Snapchat needs to be polished. You can take a selfie without makeup or, even better, turn your face into a cartoon animal.
And yet part of Spiegel’s growing up has been about showing advertisers his company can perform many of the same functions as Facebook and Google—for instance, targeting users by their locations and interests—more cheaply. During the employee Q&A, Spiegel said he was willing to “sacrifice short-term results to try to make a positive impact in the world.” But sooner or later, Snap will need to make money.

Spiegel works in a Santa Monica business park overlooking the municipal airport. On the wall by his desk is a framed motivational quote from the spiritual teacher Marianne Williamson: “Who am I to be brilliant, gorgeous, talented, fabulous? Actually, who are you not to be? You are a child of God. Your playing small does not serve the world.”
Spiegel says the words—a gift from his wife, supermodel Miranda Kerr, when he turned 25—hit home last year, when he was watching a livestream of the commencement ceremony at Stanford, his alma mater. The speaker was actor Sterling K. Brown, an alumnus who starred in the TV drama The People v. O.J. Simpson. Brown spoke about overcoming fears of inadequacy. “What the guy at Stanford said was, by you shining your light, you give other people the permission to shine theirs,” Spiegel says. “I was like, Oh, my God, that’s really the journey that I went through as a leader.”
Asked why he was so reluctant to shine, he pauses for a few beats. “I had a pretty serious Christian upbringing. I remember growing up I was taught to be small, be a turtle,” he says. “I remember thinking, Why would I go around the company and just chat with people? Like that would be so awkward. Now I go walk around the office and get a ton of emails like, ‘Oh, my God, that was awesome you came by.’ ”
A more serious problem for Spiegel besides his shyness, at least in the eyes of his employees, is his aversion to ­criticism. “No exec challenges Evan—no exec who lasts over a month, anyway,” a former employee says. When he’s challenged, Spiegel tends to ignore warnings. After Instagram copied Snapchat’s Stories, he refused to believe that was contributing to a slowdown in growth, according to several people familiar with Snap’s operations. (Snap disputes this, pointing to its IPO prospectus and internal documents that show that Spiegel discussed competition from Instagram with at least some employees.) Spiegel also pushed for last year’s redesign even after he was presented with data that predicted the changes would turn away users. In this sense, one employee says, declines in the price of Snap’s stock, which is trading 31 percent below its IPO price, have been a blessing in disguise, a persistent reminder to Spiegel that what he’s doing isn’t working.
He argues that ignoring critics has served Snap well. Disappearing stories seemed silly in a world where every photo can be saved, except that was exactly what made them cool. Letting people turn their faces into bunnies wasn’t a good business, and then revenue started flowing. “Over and over again, everyone told us that our company was going to fail,” he says. “We worked against all odds, especially in this landscape with tech giants.”
For better or worse, the team that took Snap public last year mirrored Spiegel’s lack of experience. In their prior jobs, few on the leadership team had experience as public company executives. Halbert, the head of human resources, for instance, was a military officer. Earlier this year, the Information reported that during a training session, he told stories of violent encounters in Mexico and described a sort of orgasmic meditation strategy he’d used during deployments. After complaints, an outside law firm investigated Halbert’s behavior. Unlike most of the 2017 team, he’s still on the job, but he reports to Stone, Snap’s CFO, instead of directly to Spiegel.
As the executives have cycled through, one bright spot has been Stone, a former Amazon.com Inc. executive who’s getting praise from analysts. Some investors hope for another seasoned leader to come aboard and do what Sheryl Sandberg has done for Facebook. Not that the opinions of these shareholders matter. Spiegel and co-founder Bobby Murphy hold all the voting power. The company’s first annual meeting, held on Aug. 2, involved no public questions. It lasted 2 minutes and 46 seconds.
For now, Spiegel is focused on improving the company from within. He’s putting executives through coaching sessions with Miles, reading management books, and spending more time with board members such as A.G. Lafley, former CEO of Procter & Gamble Co. Miles says the most important development from their work is that Snap has gone from a “hub-and-spoke” model, with Spiegel in the middle, to something more “distributed,” with “less special people and less ­special information.”
Ultimately the trick for Spiegel will be to ­professionalize his company, the way Facebook did years ago—without ­becoming too much like it. Lafley says he considers the Snap brand 10 years behind Facebook’s, at a point where it hasn’t broken its users’ trust yet. “You don’t want to get swept into the problems of others in the industry that are not your problems,” Lafley says. “But you want customers to understand how you’re different and why you’re different.”