As businesses struggle to deal with the coronavirus, some firms are pivoting their business models to deal with the pandemic. Wharton Professor Mauro Guillen joins The Final Round panel to break down the details.
SEANA SMITH: The pandemic is putting pressure on companies to pivot their business models in order to survive the economic downturn. So for more on this, we have Mauro Guillen. He's a professor of international management at Wharton.
And Professor Guillen, it's great to have you on the show. We've been talking about the fact that companies are being forced to make these tough decisions right now in this environment. So from your perspective-- I know you've done a great deal of looking into this-- how are companies successfully pivoting their business in this environment that we're in right now?
MAURO GUILLEN: Well, some of them are doing really well. And they found new riches and new customer segments to serve and so on and so forth. Others have been much slower. And by the way, as you go down in terms of size, you find a lot of companies that have just given up. And they have exited the market. Or they have shut down at least, you know, for the time being.
SEANA SMITH: When you look at some of the names that are doing it right or some companies that have been forced and have made these transitions relatively quickly, I know you mentioned Spotify in a recent article that you wrote in the "Harvard Business Review." But talk about just the different steps that Spotify took and maybe what other companies can do or can learn from some of those changes.
MAURO GUILLEN: Yes, so platforms such as Spotify, in principle, you would tend to think would be in a very strong position during a lockdown. Because they deliver something seamlessly over the airwaves, and so no logistics involved. And of course, people perhaps would have more time to listen to music at home during the pandemic.
And indeed, they did see the number of subscribers go up. But at the same time, if you remember, this is a company that relies quite a bit on advertising revenue. Because they have a lot of free users. And therefore, that plummeted in the first quarter by 30%. And I think they're going to announce an even deeper decline during the second quarter of this year.
So how did they pivot? Well, they pivoted in a way that has been a very important step for them, which is to create content and to involve the users, have the artists and other people in their ecosystem take things and post them.
You see, Spotify, if you remember, unlike Netflix, never really produced its own content. And that pivot, I think, is going to make the company so much stronger in the future, even after the pandemic goes away.
AKIKO FUJITA: You know, it seems like for a lot of these tech names-- and you mentioned Spotify, which is still a tech company, or an Airbnb or an Uber-- that the pivot is, in many ways, easier because they're a lot more nimble. And a lot of it is just driven by software and services.
But I'm wondering how you're viewing the retail space. There's a lot of these companies that were already struggling going into it. How many of these you think can actually make the proper pivot? Is there a company that you could maybe single out as one that's been able to adapt within the last several months?
MAURO GUILLEN: Well, there are certainly many companies that rely on physical retail, right? Brick and mortar that have been able to pivot to rotate into more online. Now regarding brick and mortar stores themselves, some of them do have very, very important online operations and they being able to pivot in that respect a little bit.
But you see, the biggest change I've seen in smaller brick and mortar, the ones that serve customers at distances less than 15 miles, this type of e-commerce didn't exist before this pandemic, really. And Shopify, the Canadian platform, has taken advantage of this opportunity.
And they have offered these smaller, you know, neighborhood kind of stores an opportunity to be able to operate in this environment. And what they've done is not just offer them the possibility of selling, advertising the products and selling them online, but also, all of the logistics, all of the payments operations, the entire back office, right, cloud-based.
So we've seen, especially among smaller firms, quite a bit that have rotated-- pivoted in the retail space, brick and mortar retail especially at very short distances, something that I never thought would happen now.
ANDY SERWER: Mauro, we've seen companies that are obviously able to take care-- to take advantage, I should say, of being all digital, benefiting, and then companies that are highly leveraged or skating on thin ice, on the other hand, going bankrupt in the stay-at-home trade.
But are there any things-- any characteristics that you can identify of companies that have been able to succeed or that are succeeding, either in terms of their line of business or maybe even more importantly, in terms of their execution?
MAURO GUILLEN: Yes, Andy. So I think there are three key characteristics that seem so far to be associated with success in terms of this pivoting. So the first one is, you know, essentially thinking that it is just a small rotation, right, that may do the trick.
And as you pointed out, companies that are not burdened by a lot of debt or burdened by a recent acquisition or burdened by a recent decision to expand in a way that is completely inconsistent with the new reality that we're facing right now. Those companies have had so much more trouble.
The last thing that I've noticed that seems, once again with the immediate data that we have, seems to be associated with these successful pivoting is just a very, very clear message from the top, right, that instead of giving up, they're going to look for ways. They're going to look for making investments.
So once again, companies that, you know, were caught up in this crisis with very high levels of debt find it, of course, so much more difficult to make those investments to redeploy their assets.
SEANA SMITH: That's so interesting. So many of these businesses are really being forced, whether they want to or not, to pivot their business models in order to survive this pandemic that we are in, the crisis that we are in the midst of right now. Professor Mauro Guillen, great to have you on the show. Thanks so much for taking the time to join us this afternoon.
MAURO GUILLEN: Thank you so much for having me.