CEO Dick Costolo is helping Twitter IPO take flight

SAN FRANCISCO — Dick Costolo doesn’t fit the profile of a typical tech start-up chief executive.

He’s not a twentysomething college dropout. He didn’t start Twitter Inc. in his dorm room. And he doesn’t wear a hoodie.

At 50, with a balding head and square-rimmed glasses, he’s a seasoned executive with a substantial corporate track record — much like Eric Schmidt, the “adult supervision” who helped Google Inc. co-founders Larry Page and Sergey Brin turn their search start-up into an Internet moneymaker.

Although not a company founder, Costolo was precisely what Twitter needed three years ago when he took the helm of the troubled start-up. And now many analysts say he is exactly what the company needs as it heads into one of the most important days in its short business life.

On Thursday, shares of the social network are expected to begin trading under the symbol TWTR on the New York Stock Exchange in the most hotly anticipated technology debut since Facebook Inc. in May 2012.

“Great companies have multiple founding moments, and Dick brought another to Twitter with his leadership,” Twitter co-founder Jack Dorsey said.

It hasn’t always been easy.

A motivational poster that used to hang on the wall at Twitter said, “Let’s make better mistakes tomorrow.”

When Twitter moved into splashy new digs in June 2012, Costolo packed up all the company’s artwork but left that poster behind. The message to the troops was clear: Twitter had no more room for error.

“He does come off as a grown-up,” said Max Wolff, chief economist and strategist at ZT Wealth.

But more important, Wolff said, “he put Twitter on the path to being a revenue story as opposed to being a public phenomenon.”

It’s a dramatic turnaround for Twitter, whose future just a few years ago was anything but promising.

Twitter has lofty ambitions of writing the first digital draft of history in short, rapid-fire messages that ricochet around the world. But the underlying technology was being crushed by the weight of swelling traffic.

Management strife and internal squabbling had gotten so out of control that a score card was needed to keep up with who was in charge.

In Silicon Valley, where it’s a badge of honor to burn the midnight oil, Twitter employees were known as 9-to-5 clock punchers. And the company seemed lost on the notion of how to make money.

“For a while, if you were going to try and wipe out one of the Internet franchises in Silicon Valley, Twitter would be the one,” said Ben Horowitz, a venture capitalist and pal of Costolo. “You knew that if you attacked them, they would have trouble responding.”

Now, he said, “Twitter is one of the last ones you would go after.” The credit goes to Costolo, Horowitz said.

Costolo brought management stability to Twitter in part by creating a management course there and teaching it himself.

He helped Twitter define what it is (a global town square or, as he sometimes puts it, “the pulse of the planet”), and set the direction for how the product would evolve to make Twitter easier and more intuitive for people to use.

He recruited key executives and poached top talent from competitors.

Costolo instilled discipline and a new work ethic by coming back to the office after dinner and working side by side with employees who stayed late.

He also made sure that the company fixed the massive technical issues causing service outages while keeping Twitter up and running, a feat he compared to “laying down new track as a train is barreling down the track.”

Most important, he was instrumental in devising a new form of advertising, the most successful of which is the “promoted tweet.” It looks like a regular tweet, but advertisers pay for it to appear at the top of users’ streams of updates and in search results.

He also set Twitter’s sights on the most lucrative advertising market — television — and positioned the service as the second screen on which TV viewers discuss what they’re watching.

“It wasn’t a silver bullet, but a lot of lead bullets,” Horowitz said.

Still, Twitter faces challenges that will increase in difficulty as a publicly traded company.

Growth among U.S. users has slowed to a crawl. Twitter’s losses are widening as it invests money in expanding internationally, where many analysts wonder whether it can succeed. Three-fourths of Twitter users live overseas, but only one-fourth of its revenue comes from overseas advertisers.

Twitter does not yet have the scale or nearly the success that Facebook had before it went public last year. Facebook reported an annual profit of $1 billion and revenue of $3.7 billion before its initial public offering of stock. Twitter reported a net loss of $79.4 million on revenue of $316.9 million in 2012. As for users, Facebook has 1.2 billion compared with Twitter’s 232 million.

And the pressure to sharply grow its popularity and revenue and turn a profit will only intensify from Twitter shareholders.

Last week Costolo embarked on an eight-city tour to persuade mutual funds and hedge funds to sell investors on the Twitter IPO.

It’s the most crucial performance of his career. The onetime improvisational comedian stood before packed rooms of money managers to pitch a company that is going public at a value of $13.9 billion or higher.

Twitter said last week that it would price its shares at $17 to $20, a far more conservative range than analysts expected. With demand soaring from institutional investors, Twitter on Monday raised that range to $23 to $25. And some people think that the company will increase the price of the IPO on Wednesday.

From the start, Costolo has gone to great lengths to make Twitter’s IPO as low profile as possible in an attempt to avoid the massive hype that surrounded the Facebook IPO.

He donned a blue blazer but no tie last week as he made the customary rounds of the investment banks to kick off the Twitter road show.

At JPMorgan Chase & Co., Costolo was introduced by the firm’s top deal maker, Vice Chairman James B. Lee Jr.

Behind Lee hung a banner with the logos of many of the companies that JPMorgan had taken public. Twitter’s blue bird logo was spotlighted in the center. Facebook and Google were relegated to the bottom.

Costolo thanked Lee for the introduction and then joked: “I fully expect that when you welcome Airbnb for their IPO that our bird is still going to be at the center of this banner.”

Analysts and investors say Twitter could not have timed its IPO any better, because it is entering one of the strongest and most receptive markets in years. Institutional investors are clamoring for a piece of a hot technology company with growth potential.

“Generally there seems to be real positive sentiment,” said an investor who attended one of the meetings.

Money managers are concerned about the “lack of profits and rising losses,” this person said. Additionally, investors aren’t sure whether Twitter can make enough money overseas, where most of its users and growth are.

It falls to Costolo to change their minds, just as he changed the course of Twitter when he joined the company four years ago with a unique qualification: his dry wit.

Costolo majored in computer science at the University of Michigan but needed arts credits to graduate. So he started taking theater classes during his sophomore year. By his senior year, he was rocking the open mike in the student union.

After graduation, instead of leaping at offers from big computer companies, Costolo moved to Chicago and joined an improvisational comedy troupe.

In 1994, when the Netscape browser debuted, Costolo realized that the Internet held more promise than his comedy career. He started and sold three companies: The last one, FeedBurner, was bought by Google in 2007 for $100 million.

After leaving Google, Costolo moved to San Francisco with the dream of launching another company. Instead he accepted an offer to join Twitter as its chief operating officer in 2009.

It turned out that his days in improv made him a popular figure on Twitter; he has 1.1 million followers. In his first update on Twitter after taking the gig, Costolo quipped: “First full day as Twitter COO tomorrow. Task #1: undermine CEO, consolidate power.”

A year later Costolo did replace Twitter co-founder Evan Williams as chief executive as the board of directors tried to contain infighting between the founders. The board assigned him the task of turning the popular service into a moneymaker.

It’s not there — at least not yet. But, during an interview with The Times last year, Costolo said he firmly believes that Twitter can become a company on par with Apple Inc., Facebook and Google.

“We view the company on its way to being one of the permanent residents of the digital media constellation,” he said.

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