How will Yahoo heal after Microsoft walked away?

Yahoo is a bleeding animal. Left lying, gasping for its breath, after a larger animal (Microsoft) struck and then walked away after it proved too difficult to eat. (That was just announced a few minutes ago).

How will Yahoo heal?

Some daunting challenges:

1. The perception itself that Yahoo is a wounded animal.
2. The bleeding of interesting employees, both due to layoffs as well as people just leaving to join stronger companies.
3. The trouble that it has keeping its search market share.
4. They started working on a deal with Google to sell its advertising. That’s going to prove tough to get through regulators and will cause public opinion to turn against Google, so I believe that Google deal will fall apart soon.

So, if you were in Yahoo now, what would you be doing?

Me? I would first rally the troops. Offer some real financial packages to key employees. Release a video tomorrow that explains why Yahoo believes it is worth $37 a share (people I talk with don’t believe it is).

But after that, how do you do the real work of regaining momentum? Think about college students. Would anyone want to go to work there this summer? Google and Facebook seem a lot cooler than working at Yahoo.

If Yahoo’s management can stop the bleeding and get up and start running again, it’ll be quite impressive. I just don’t know that it has enough life in it to do that. Plus, when Rocky and me heard the news (we were driving back from Maker’s Faire) we both looked at each other and said “shareholder lawsuits.”

The bleeding might just start to be apparent. Tonight I’m going to a dinner with a ton of CEOs and I’ll ask around what they would do.

The smell of a good startup

When I was over in Israel I was talking with a couple of journalists about what makes a good startup. One guy, I think it was TechCrunch’s Ouriel Ohayon, said he likes to visit startups to “smell the startup.”

That started a discussion of what you do smell. Do you smell money burning in the middle of the floor? I remember visiting ZDTV when it was just getting started and thinking to myself that this business would never be profitable. In my mind I imagined $100 bills burning in the middle of the floor. I wasn’t too far off.

Other journalists have told me they get nervous about a company if they claim to be a software house, yet there are too many “pretty people” running around. Engineers are rarely pretty. Or, if they are too scripted. Or if they have ostentatious offices. Startups should be in pretty cheap surroundings.

Yesterday Rocky and I drove for four hours to visit Threshold. Because we video each startup and don’t just talk to them over the phone, we get a far different feel of each company than someone who does a blog, but who doesn’t take the time to actually visit.

This is a huge tax, and explains why other bloggers can get 10 posts out a day, while I can only do one or two videos.

But, it does give me an advantage: I can “smell” the startup.

Yesterday we used those “smelling skills” to get to know Threshold. It’s a startup focused on building home-automation and control equipment. I’ve been interested in this field for some time, but I haven’t seen anyone really get it easy-enough-to-use to have a chance of getting anyone but the geekiest early adopters to use it.

Why is that? Well, let’s think about home automation. You might want to put in a security system. Or a system to control your thermostat (which is why I’m interested in the topic, since my heating bills are too high and I am always traveling, which means the house is freezing when I get home if I leave it off to save the money and the environment).

But usually these systems require you to go through some very geeky networking setup. Not Threshold’s equipment. They found a way to pair up all your sensors via an optical sensor on top of each one. No batteries are even needed. They call it the “magic blue spot.” Just get a new motion detector, say, and hold its blue spot next to the blue spot of your home base station, push a button, and they are paired. Works for all their sensors and controls. And everything is Web based, so you can now control that thermostat from your Web browser, so you can turn on your heater before you get home, right from your iPhone.

Anyway, back to the smell of the startup. The offices were in a low-cost place. They had what looked like used furniture. Clearly no expense had been overdone. And the people we met were geeky, passionate, and not very good on camera. Makes my job a little tougher, but tells me that we were in front of the real deal, not some dance and pony show. Funny, the same CEO even does his own videos on its Web site, along with the same cruddy furniture.

It worked on me. Threshold passed the smell test. I wish it well as it works to get to the next level (they are looking for funding to build even more modules and get more retailers on board).

How about you, can you “smell” a good startup?