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Opinion: Twitter was an unprofitable mess long before Elon Musk – he might be its only lifeline

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Elon Musk enters Twitter headquarters in San Francisco carrying a sink on Oct. 26.The Associated Press

Goran Calic is an associate professor of strategic management at McMaster University’s DeGroote School of Business.

It would be easy to characterize Elon Musk’s approach since taking over Twitter Inc. last month as rash, messy, destructive and unplanned.

While such descriptions would be accurate, they would certainly not be complete.

What we have been witnessing, in public and in real time, is a live demonstration of the way Mr. Musk runs a business. He has generally managed his other ventures very successfully – especially in terms of growth, if not always in terms of profit. Tesla Inc. continues to build factories and deliver cars and SpaceX rockets continue to supply the International Space Station with materials and astronauts.

It’s important to keep two things in mind while following the Twitter drama: The company was already in serious trouble and Mr. Musk’s style, though volatile, is well-matched to the problems at hand.

Since 2013, Twitter had fallen from the world’s third-largest social-media platform to the 17th. The company had barely innovated during that time, while its competitors had worked hard to reinvent themselves.

Eleven of the social-media platforms with more users are newer than Twitter. Even older incumbents are more innovative. Facebook, for example, has launched Marketplace and shifted its focus to the metaverse. In a fast-paced industry such as social media, it is vital to change and quickly to stay ahead.

If a company decides not to be innovative, as Twitter’s developers had openly acknowledged, the alternative is to be highly efficient. But Twitter, based on revenue per employee, was only 50 per cent as efficient as Facebook.

In 2016, rumours suggested another large corporation, possibly Microsoft Corp., Alphabet Inc. or Walt Disney Co., was about to acquire Twitter, but that didn’t happen. The most-cited reason was that Twitter was paying its employees twice what the competition was paying and no one wanted to engage in messy layoffs and restructuring.

Today, even relatively efficient companies are cutting spending. Amazon.com Inc. is slashing 10,000 jobs, Meta Platforms Inc. (Facebook’s parent) will cut more than 11,000 and HP Inc. will slash 4,000 to 6,000 jobs, to name just a few.

Twitter had to change to survive. Other owners might have studied efficiencies and signalled layoffs, but taken months to do it. Such efforts can send company morale and productivity into the gutter. When Mr. Musk fired half Twitter’s staff, he was doing what another owner eventually would have done.

To create a more innovative Twitter, Mr. Musk has already made, and retracted, product changes, as well as promising many more – including the potential for Twitter banking.

All this experimentation, of course, is happening publicly, rather than in a research lab or with limited groups of beta testers. The chaotic push and pull over Twitter’s verification badges, for example, has frustrated users, created massive reputational issues and provided much fodder for mischief, but it makes more sense if we regard this as an entrepreneur experimenting with different options in real time.

In business schools, we teach management as a very deliberate process in which action follows analysis, planning and deliberation. This is what most analysts would consider typical style. But there is another style of management entrepreneurs use, which is especially risky. Entrepreneurial management creates success through direct action and trial and error.

Mr. Musk is an entrepreneurial manager, and this style, which is destructive – and creative – is now on full display. Because we so rarely get to see this approach in action, it’s shocking; but it’s how Mr. Musk operates.

He starts working on a problem without knowing what the solution might be. He believes a solution exists and will emerge through trial and error.

At SpaceX he started strapping GoPro cameras to rockets and livestreaming every launch – even for experimental rockets that were likely to fail, hoping to gather useful information.

Other spacecraft developers would go to great lengths to prevent others from seeing a launch. The last thing they’d want was a prospective customer such as NASA seeing a version of the rocket they’re trying to sell being blown to pieces.

With Twitter, journalists, advertisers, politicians and users are all watching aspects of the business exploding in real time and using the platform itself to criticize what Mr. Musk is doing.

Every entrepreneurial venture has a greater chance of failure than of success, and Twitter is particularly risky. Mr. Musk himself said when he launched Tesla that it was probably going to fail. The same with SpaceX. At Twitter, he sent an e-mail to employees saying the company could be bankrupt by next year.

Mr. Musk could make horrible mistakes that kill the company, but it would likely have eventually failed regardless, and today he may be the only person who is interested in buying Twitter and has a shot at keeping it going.

For the public, witnessing this saga is like watching open-heart surgery on a very sick patient: It can be rough, dramatic, bloody and off-putting, but it may the only way to give the patient a chance to survive.

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