Streamlined for success: how focusing on efficiency fuels new growth

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In business, bigger isn’t always better. Over the past couple of years, many leading internet-focused companies have pruned their operations, making strategic cuts and refocusing resources. This was partly a reaction to changed expectations after the Covid lockdowns, when it became apparent that forecasts about the amount of time and money consumers would spend online had been overoptimistic. But it also reflected a shift in focus. The result is that these businesses are now fitter and more focused, as investment manager Gary Robinson suggests on our Short Briefings on Long Term Thinking podcast.

“It forced these companies to take a serious look at their organisational structures, their cost bases, their priorities,” he explains. “These businesses are now coming out the other side, stronger – not just in terms of being more profitable, but more nimble, more adaptable, more resilient.”

Shopify is one example. The Canadian company makes it easier for merchants of all sizes to sell their goods online. Since 2022, its chief executive Tobi Lütke has overseen two rounds of job cuts, sought to reduce the number of internal meetings and sold the majority of its logistics business as part of an effort to become what he termed “fit for purpose”.

“Lütke says that the reason why large companies slow down isn’t usually because they get large,” says Robinson. “It’s because they accumulate what he calls ‘side quests’ – projects that aren't aligned with their core purpose.

“Logistics was very much in that category of nice-to-have rather than the need-to-have. And with the emergence of generative AI, the nature of what’s possible for Shopify has completely changed. So it makes sense for the company to reorient itself around the opportunity.”

The firm has already launched AI features that allow its clients to automatically create product descriptions, answer customer queries and get support running their stores by asking a virtual assistant natural-language questions, such as: “What are my best-selling products?” But Robinson believes these will seem rudimentary compared to what will be possible within a few years.

“Having a founder who can make the company pivot fast and redirect resources during a paradigm shift is powerful,” he adds. “Unlike non-founder managers, they have the moral authority to cut through the politics and make bold decisions.”

Meta’s mission

Meta’s Mark Zuckerberg is another decisive founder-leader making tough choices to prepare for the AI age. He declared 2023 a ‘year of efficiency’, cancelling lower-priority projects, reducing the number of managers and making other changes to return to “a more optimal ratio of engineers to other roles” at Facebook, Instagram, WhatsApp and its other products.

“This was not about retrenching or a lack of ambition,” says Robinson. “This was about how does Meta best execute on its core mission.”

That task has involved developing new artificial capabilities, among other tools, to help businesses target ads at relevant customers and gauge their performance. This was prompted by Apple restricting Meta’s ability to track users’ activities on third-party apps and websites.

In addition, Meta has improved the recommendation engine underpinning Reels, its short-video service that competes with TikTok. Looking further ahead, Robinson believes there’s a huge opportunity to offer chatbot services to other businesses powered by its proprietary AI models.

“WhatsApp and Messenger have got the potential to be powerful customer service channels, but the challenge is that if you're just using human agents to do that customer service, it gets very expensive very quickly,” he explains.

“Rather than hiring thousands of people to do that customer service for you, Meta could provide you with the AI agents necessary to do the customer service and thus monetise the apps to a greater extent than it’s achieved to date.”

Block’s big opportunity

An internal shake-up also convinced Robinson to invest in Block, the fintech co-founded and led by Jack Dorsey. He’s trimmed staff numbers from just over 13,000 to 12,000, saying it would force the firm to “prioritise more impactful work”, and pledged to maintain that figure until it was a constraint on growth. In addition, he has restructured the firm to involve himself in more day-to-day decisions.

“Most great companies are tilted towards being decentralised, but I think Block probably took that a bit too far to the point where the individual business units at the firm were focused more on what they were doing than the overall mission of the company,” explains Robinson.

This has the potential to help bring two parts of the company closer together:

• Square – the provider of point-of-sale hardware and software that lets shops, restaurants and other businesses accept offline payments, provide gift cards and run customer loyalty schemes, among other services
• Cash App – a service that lets users send and receive money, shares or bitcoin cryptocurrency for free. It makes money by charging fees on credit card payments, selling bitcoin and allowing customers to make instant withdrawals rather than waiting up to three business days

Having both platforms under the same roof puts Block in the rare position of being able to break into a highly lucrative market.

“There’s the potential for Block to build a ‘closed-loop card network’, like Visa and MasterCard, where the transaction runs across the same infrastructure from the point the consumer pays to the point the merchant receives the payment,” explains Robinson. “But to do so, it needs to tie Square and Cash App up rather than running them as two independent businesses.”

Robinson acknowledges that efficiency savings come with human costs, and leaders need to be mindful of how these might impact their companies’ culture. But he adds that, when handled well, they can free up investment and management time to focus on future growth, benefitting staff, customers and shareholders.

“This gave the companies the impetus and the licence to think from first principles about what their businesses ought to look like,” he says. “And, in my opinion, almost all the best companies are run by first principle thinkers who approach the task with a blank sheet of paper and ask, how ought it to be done, not how is it done.”

Hear more of Gary’s thoughts, including Amazon’s growth opportunity, by subscribing to Short Briefings on Long Term Thinking on your favourite podcast app.

Words by Leo Kelion

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