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Why Facebook Needs Sheryl Sandberg

Mark Zuckerberg's second-in-command provides "adult supervision" at the company, trying to keep growth at an optimum level

On a Tuesday afternoon in late April, 30 managers of Facebook's various business units come together to discuss a matter that preoccupies its famous founder: how to keep their rapidly growing little company from getting too big. The meeting, organized and led by the second-most-famous person at the social network, Chief Operating Officer Sheryl Sandberg, focuses on how to solve the problems of users, advertisers, and partner websites by using automated systems rather than bringing in thousands of new employees.

One by one, the managers stand and present their progress on new productivity-generating tools. A service called social verification offers a way for Facebook members who get locked out of their accounts to have friends verify their identity. Another new system intends to scare away creators of fake profile accounts by displaying their locations on a map and asking if they really want to continue.

Sandberg, sitting with one leg tucked underneath her, the other folded over the arm of the chair, listens intently and responds with a mix of positive feedback and disarming camaraderie. "That is a huge accomplishment," she says when an international manager talks about new efficiencies in the Hyderabad office. "Whoever worked on this, you guys should feel great. It took us four years at Google to do this." The success of an automated tool that eliminates duplicate profiles on the service evokes an "awesome."

Sandberg hopes the new procedures discussed at these meetings will allow the Palo Alto company to maintain a moderate pace of hiring. She believes that other booming Internet companies that doubled and tripled their staffs during similar periods of unchecked growth—Google (GOOG) has more than 26,000 employees—eventually came to regret the innovation-killing bureaucracy that resulted. Facebook has only 2,500 employees. A new headquarters under renovation one town over in Menlo Park, on the former Sun Microsystems campus, currently maxes out at about 3,600. "We think one of the best ways to stay small is just to stay smaller," Sandberg says later.

As the meeting winds down, a product manager shows a slide that nearly makes Sandberg jump out of her seat. The chart displays Facebook's advertising revenue and volume—both lines are tilting upward. It also shows the number of man-hours spent on support operations, a line that holds steady. "This is a beautiful chart. I might frame it on my wall," Sandberg says. "Guys, this is the difference. This is about, how big do we want to be as a company?"

Ever since Silicon Valley started turning out companies with beautiful growth charts, entrepreneurs and their investors have talked about the need for "adult supervision"—a seasoned executive who can take over a startup from its inexperienced founders, guide it through the hazards of hyperkinetic expansion, and convert a great idea or breakthrough technology into a bona fide business. Today, however, young founders generally want to remain at the helm of their companies, and there's a new shorthand for the kind of leader who's willing to serve as a second-in-command, complementing without overshadowing the wunderkind entrepreneur: a Sheryl Sandberg. As in, "we're growing, but God knows how we'll make money. What we really need is a Sheryl Sandberg."

No one needs a Sandberg more than the company that currently has her. In the three years since Sandberg, 41, defected from Google and joined Facebook as its COO, she has helped to steer the company to previously unimaginable heights, devising an advertising platform that's attracted the world's largest brands and forging a remarkably trusting partnership with Mark Zuckerberg, its imperious 26-year-old founder. (He turns 27 on May 14.)

Even with all that, Sandberg now faces her toughest challenge. Facebook, which has grown from 66 million members when she joined to more than 640 million, is undergoing the kind of metastatic growth that tends to sow organizational turmoil. Her job is to "scale" Facebook, or help it grow, cranking up its business engine and justifying the grossly inflated expectations for the social network, which many bankers believe could make a huge splash with a $100 billion initial public offering later this year or early in 2012. Such an IPO would instantly make Facebook one of the most richly valued Internet companies in the world; it would also raise the level of scrutiny the company is under—and it's already the focus of obsessive attention—by another order of magnitude. Sandberg says she's not daunted by the challenge, but adds that the only expectations that Facebook is trying to meet are its own. "I assure you that no one's expectations are higher than Mark Zuckerberg's," she says, "and I don't mean in terms of market cap. We want the whole world to use Facebook to share and connect."

Facebook and Sandberg have their work cut out for them. The company is confronting the kinds of obstacles that for years have bedeviled its left-brained founder. There's a steady exodus of senior tech employees, looking to cash in their stock on the secondary markets. There's yet another improbable lawsuit over the firm's Harvard origins; contentious internal deliberations over whether to open operations in China; and, of course, ongoing issues with privacy. Even under Sandberg's watch, the company has repeatedly angered consumers over what's private and what's public on Facebook.

Yet for all that she has on her plate, few are willing to bet against her, and friends and colleagues rave about her deftness with the subtle form of persuasion known as soft power. "She's truly the best operating executive I have ever met in my life," says Matt Cohler, an early Facebook executive and now a venture capitalist. Jim Breyer, a Facebook board member, adds: "I can say very simply I have never seen anyone with her combination of infectious, enthusiastic spirit combined with extraordinary intelligence."

Sandberg's light touch stands in stark contrast to the nerd machismo of other Valley icons. Steve Jobs and Larry Ellison can hardly be called nurturing; former Intel (INTC) Chief Executive Officer Andy Grove was so intimidating that he once made an employee faint during a performance review. "I've cried at work," Sandberg says. "I've cried to Mark. He was great. He was, like, 'Do you want a hug? Are you O.K.?' "

"Without her," says Zuckerberg, "we would just be incomplete."

Back in early 2008, before Sandberg came aboard, Zuckerberg had a reputation as a hubristic geek who had developed a service around human relationships without seeming to understand them. Facebook's membership growth had slowed, top executives were bickering, and the company was on the receiving end of an angry backlash over an ill-conceived advertising service called Beacon, which some users complained divulged their online purchases to friends without their permission.

Facebook's biggest concern was the absence of a sustainable, scalable business model. The company had an agreement with Microsoft (MSFT) to power search and place banner ads on the social network, and was conducting failing experiments with online classifieds and allowing users to buy virtual gifts for one another. Like many technological purists, Zuckerberg looked down on the ignoble business of selling ads. "I think early on we had almost this phobia that we shouldn't focus too much on [ads], because that meant we were not putting our best foot forward on user products," he says.

With his new COO in place, Zuckerberg embarked on a month-long trip around the world—and Sandberg set about forging a new ad business. She convened a series of regular after-work meetings at the company's downtown Palo Alto offices, ordering in food and scrawling potential revenue opportunities on white boards. The possibilities, she recalls, boiled down to two categories—making users pay or making advertisers pay. Employees quickly agreed with her that the latter was far more appealing. "It was stressful because this was about our entire business and all of our revenue," she says.

Outside reviews from that early period were mixed. Several high-profile execs departed, such as Cohler and Chief Technology Officer Adam D'Angelo, who went on to create the question-and-answer website Quora. The tech gossip blog Valleywag photo-shopped a rifle onto a picture of Sandberg and insinuated that she was running roughshod over the social network and spoiling all the fun. Friends say Sandberg was upset at the characterization, in part because some people thought she was wielding an actual firearm in the photograph.

Eventually the sniping stopped. One reason: The ad model that Sandberg and her colleagues devised in those nighttime meetings has worked in a way that few could have imagined.

"Social ads" on Facebook perch unobtrusively on the right border of the page and usually specify which of a member's friends has "liked" or commented on that particular ad or advertiser. The data company Webtrends says that only around half of one percent of people who see these ads actually click on them; yet Facebook pulled in an estimated $2 billion in sales in 2010, Bloomberg has reported, and is on track to do twice that in 2011. Facebook executives argue that the click-through numbers are not that meaningful; they say that people remember ads better and are more likely to make purchases when their friends endorse products.

Advertisers appear to be buying that logic. The social network now serves up nearly one-third of the display advertising that Internet users see in the U.S., according to comScore (SCOR), and delivers twice as many ad impressions as its closest rival, Yahoo! (YHOO).

Sandberg wants to let advertisers burrow even deeper into the social fabric of the site. When a user checks into a restaurant using the Facebook app on their mobile phone, or leaves a comment on the profile page of an advertiser, that action gets broadcast into friends' news feeds, where it can get lost in the clutter. A new tool called Sponsored Stories allows advertisers to pay to turn that member's action into an ad, which is more likely to be seen by the user's friends.

It may sound obscure, but if you're an advertiser, there's nothing better than converting customers into unpaid endorsers. Michael Lazerow, chief executive of Buddy Media, which helps brands advertise on Facebook, predicts that the largest advertisers will cross the $100 million spending threshold on Facebook this year. "The ones who were spending zero last year are spending millions this year," he says. "The ones who were spending millions are spending tens of millions."

Facebook's tentacles now touch millions of other websites, from the Huffington Post to (AMZN), that use its reader comment system, and its "like" and "send" buttons, to allow their users to share their content with their friends on the social network. Under Sandberg's direction, Facebook has begun preaching the mantra of what it calls "social design" to companies that want to remake themselves for the fashionable age of social media. It sets up Facebook brilliantly—those social ads may someday start showing up on any site that has a "like" button.

Sandberg helped to develop much of this basic playbook during her time at Google. Facebook's ads are meant to fit into the context of the social network, just as Google's targeted search ads complement its algorithmically generated search results. Sandberg has even organized Facebook's advertising group in the same way as Google's, with a direct sales organization reaching out to the world's largest brands, an inside sales team catering to medium-size marketers, and an online sales group that builds self-help tools for the smallest companies. She has plucked many of her top lieutenants at Facebook from Google as well.

Given Facebook's trajectory, Google losing Sandberg could become legendary as a tech industry misstep—like operating system pioneer Gary Kildall flying off in his personal plane in 1980 instead of closing a deal with IBM (IBM), which opened the door for Bill Gates to license MS-DOS to the computing giant. "Google has done so many things right, but the thing they screwed up more than anything was missing the import of people from nonengineering backgrounds and failing to appreciate the value such people can bring," says Roger McNamee, a friend of Sandberg's and a founder of Elevation Partners, which has an investment in Facebook. "As a consequence, a lot of people like Sheryl were not given an opportunity to shine to their true level. For all intents and purposes, Google chased Sheryl away."

Sandberg grew up in the middle-class suburbs of Miami, the oldest of three children; her mother taught English and her father was an ophthalmologist. By the time she attended Harvard in the late '80s, her college friends say, she was already a whirlwind of intellect, social perspicacity, and political activism.

At Harvard, Sandberg organized her dorm into a cohesive social unit and assembled a group to encourage more women to major in economics and government. In 1991 she caught the eye of economics professor Lawrence Summers by scoring the highest on a midterm exam, and he agreed to be the adviser on her thesis—on the correlation of domestic violence against women and socioeconomic status. Sandberg recalls that in completing that project, she ran so much data on the Harvard University Science Center computers that she crashed the system, more than a decade before another student, Mark Zuckerberg, would notch the same achievement. In Sandberg's case, network administrators called Summers to complain, and he in turn hired her after graduation to join him at his new post as chief economist of the World Bank.

Summers says Sandberg proved herself quickly, in part by researching a question that someone had raised idly—whether 70 years of Communism could have been avoided if someone had financed the Russian politician Alexander Kerensky. "She came back six hours later, analyzing the merits of this thesis," says Summers, who calls her "a remarkable person." (Sandberg reports that she simply picked up the phone and asked Harvard professor Richard Pipes.)

After two years at the World Bank, working on poverty-related issues and touring leper colonies in India, Sandberg joined Summers at the Treasury Dept. She later became his chief of staff after he was promoted to Treasury Secretary. In that role, she had a responsibility to pass her boss's directives to some dozen Senate-confirmed under secretaries—and no authority with which to enforce them. In her third day on the job, one of them, U.S. Customs Chief and future New York City Police Commissioner Ray Kelly, slammed the phone down on her after saying, "Just because I'm not in Larry Summers' 30-year-old brain trust does not mean I don't know what I'm doing." After that, Sandberg visited each under secretary and asked how she could make their job easier. "Once you've done that, you have the relationship," she says.

In some ways, Sandberg is still a creature of Washington. She holds parties and events at her house almost constantly, evoking the high-powered hospitality of the late Washington Post publisher Katharine Graham in her heyday. She doesn't bring a laptop into meetings, preferring instead to scrawl notes in a day planner. And she's made great use of her political skills, praising subordinates in public and keeping reprimands private. ("She is super direct," says Mike Schroepfer, Facebook's vice-president of engineering. "She pulls people aside privately and says, 'I'm going to be the one to tell you, this is what people are expecting from you and here's what you need to do to improve.' ")

She also uses her sociability to advantage as Facebook's top recruiter, where she often forges tight personal bonds in the process of bringing coveted candidates to Facebook. Carolyn Everson was Microsoft's global head of sales when she got an unsolicited phone call from Sandberg earlier this year, asking if they could meet for the first time about an opening as Facebook's vice-president of global sales. During the brief ensuing courtship, Sandberg called Everson from her car, from her home, and from vacation in Mexico, where Everson could hear her kids frolicking in the background. "One night she left a message saying she was actually going to bed at 9 or 9:30 and that she was exhausted," Everson says. "I was, like, at least this woman sleeps."

The bond wasn't fleeting. After she was hired in the job, Everson was asked to speak before Facebook's 800-person sales team, and agonized about the choice of whether to wear a red dress or a more casual pants and tunic. Naturally she called Sandberg, who said, "First, there is never a dumb question. This is what girlfriends are here for." Then she selected the red dress.

Despite Sandberg's managerial skills and personal touch, some of the same problems that have given fits to other leading tech companies—including the one she left—appear to be hurtling toward Facebook. Foremost is privacy. Last year the company introduced a feature called "instant personalization" that allowed outside websites to tailor their content to a Facebook user's personal details. Members found that creepy, and privacy groups did, too.

Facebook tactically retreated—as it regularly does—and offered a single way for users to opt out of websites being able to see their Facebook user preferences. Nevertheless, the Federal Trade Commission has initiated an inquiry into Facebook's constantly morphing privacy policies after a formal complaint from privacy organizations. Two people familiar with the inquiry say that within weeks, the

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