(By Buzz Knight) I recently posted on my Twitter/X account about how an Inc. Magazine article about Spotify’s profitability problems and most recent RIF sounds familiar to other companies and industries. My pal, the great Fred Jacobs, nudged me to write more.
Focus is everything. Remember the quote from Steve Jobs on focus: “Focus and simplicity – once you get there, you can move mountains.” Regarding Spotify, the Inc. article says, “It’s in this situation because its leaders keep making bad bets on things that aren’t helping Spotify do what it’s supposed to do: make money.”
Doesn’t it surprise you at every quarterly earnings call for Spotify that there is a new redirection of priorities? The same could be said of other companies such as SiriusXM as well. The lack of focus on profitability as a priority of performance is often stunning.
I think we can agree that Spotify subscribes to the basic theory that when an earnings call is about to ramp up, the focus is on what statements and short-term actions can move the stock price. This, in my opinion, is the wrong focus. Shouldn’t the focus be on deeply analyzing where the company is in the short term and what is their blueprint for profitability in the long term.?
There is no doubt that the Spotify business conundrum is so complex that it will be studied in business schools for years to come. Its offerings are nothing short of magical, yet the losses they take every quarter are nothing short of daunting.
What lessons can other companies and businesses learn from Spotify’s failures?
Address fair compensation.
Spotify has faced ongoing criticism from artists and musicians who argue the streaming service pays too little for their work.
This issue highlights the importance of equitable compensation for content creators in the digital age.
It serves as a reminder that businesses must continually adapt and find sustainable ways to fairly compensate those who contribute to their success.
Place bets, but watch them carefully.
Spotify isn’t the only player in the music streaming industry. Competitors like Apple Music, Amazon Music, and YouTube Music keep the company on its toes. Spotify’s failures in certain markets and the need to continually innovate underscore the importance of staying ahead in a competitive landscape.
When you are in their position you need to consider when to go “big” with your bets, but you better have a high batting average on whether your investment is beneficial to shareholders.
Hire talent to win but make certain you aren’t over-hiring beyond your needs.
Overzealous hiring is documented in the article on Spotify, but they aren’t the only company that overdid it. Many tech companies became overzealous in stocking their talent bench, but in the long run, they determined they didn’t need everyone. It is like the classic “eyes are bigger than your stomach” when you step up to the dinner table.
You need to decide what business you want to be in.
It has been said of Spotify, “Are they a tech company or are they a content company?” The law of focus requires you to pick what business you are in and over-deliver on the execution of the strategy so your profits start rolling in.
In a rapidly evolving digital landscape, Spotify’s story serves as a compelling case study for businesses seeking to navigate the challenges of the digital age while learning from their failures along the way.
