A trading post sports the Spotify logo on the floor of the New York Stock Exchange on April 3, 2018.Richard Drew/The Associated Press
Gus Carlson is a U.S.-based columnist for The Globe and Mail.
It doesn’t happen often enough, but once in a while a corporate leadership team will make the hard and sometimes unpopular call to alter a company’s course before hitting the iceberg of a downturn, not after.
Even rarer is a chief executive officer who treats employees affected by the change like grown-ups, delivering to them the unvarnished and painful strategic truth behind the decision-making, rather than sugar-coating the news with hollow platitudes that HR people think make tough decisions easier to swallow.
That’s what’s happening at Spotify, the popular music streaming service based in Stockholm. Earlier this week, the company announced it would cut 1,500 jobs, or about 17 per cent of its work force, because the leadership believes the company is too fat and not agile enough to weather a potential downturn properly. The cuts follow reductions of a total of 800 roles in two tranches earlier this year.
While layoffs are never good news, in announcing the move, Spotify founder and CEO Daniel Ek was refreshingly honest about the company’s need to get fit now, before the slowdown comes. In a memo to all staff, he said Spotify had hired too many employees and made too many big investments in technology during 2020 and 2021, when investment money was plentiful and cheap.
During the company’s phase of impressive growth, Mr. Ek said Spotify achieved great things, in large part because it had plentiful resources and financial strength. But while the organization had improved its performance, it was also less efficient.
“We need to be both,” he wrote. “It’s about preparing for our next phase, where being lean is not just an option but a necessity.” Mr. Ek acknowledged that economic growth has slowed and money has become more expensive, factors not exclusive to Spotify’s situation.
What makes the Spotify move so interesting – and useful guidance for others trying to get their houses in order as recession looms – is the fact the company is making these tough decisions when it is relatively healthy by other measures. In its third-quarter earnings announcement in October, Spotify said it beat guidance across the board – revenue, gross margin, monthly active users and subscribers were all up smartly – and had returned to profitability.
This type of seemingly negative move from a position of strength is often misunderstood – and the source of much criticism, especially from those who are losing their jobs. How can a company delivering those kinds of numbers justify laying off 2,300 people in less than a year?
The answer is what separates good leaders from mediocre ones. Spotify is taking its lumps now, when the impact can be better absorbed, rather than risk becoming ensnared in the too-common trap of riding the good times too long, getting caught in a downturn and making readjustments such as layoffs while in crisis mode. The disruption and distraction of taking hits when you are already reeling can make a bad situation worse.
Beyond the decisions themselves, Mr. Ek should get at least a modest tip of the hat for his transparency about the personal level of difficulty behind them. This is bad news for some, and no amount of spin can hide that.
“To be blunt,” he told employees, “many smart, talented and hard-working people will be departing us.”
To some, Mr. Ek’s bedside manner may seem less than appropriate in the coddling corporate culture of modern workplaces. But being blunt and treating people with respect in a situation like this is what grown-ups do – or should do.
To be sure, Mr. Ek will probably come under fire for the strategic decisions made a few years ago that got Spotify into the situation that has made layoffs necessary this year. With a personal net worth estimated at more than US$3-billion, he will likely also get his share of slings and arrows for not fully appreciating the hardships the job cuts will bring to so many.
Still, his actions have earned kudos from one important Spotify constituency: investors. Spotify’s share price has doubled this year, including a bump of about 10 per cent after the announcement this week.
Mr. Ek also uttered the magic words of a leader who understands that in an environment where the pace of change continues to accelerate, if you’re not moving forward, you’re dead: “Lean doesn’t mean small ambitions,” he said. “We still have work to do.”