Problem: The excitement was high when Twitter went public in the fall of 2013. Twitter's share price soared from $26 at its initial public offering (IPO) to over $73 within a few short weeks. But a year and a half later, after ups and downs, Twitter was trading well under the IPO price. To add insult to injury, Twitter's debt was rated "junk," reflecting the higher risk of default in relation to investment-grade bonds. At the same time, Twitter's market capitalization was about $25 billion (share price × outstanding shares) with annual revenues of $1.4 billion, while losing roughly $1 billion a year. By the summer of 2015, Dick Costolo was coming under increasing pressure because of Twitter's lack of user and revenue growth. As a consequence, he was forced to resign July 1. A former improv comedian, Costolo's leadership style involved not only frequent but also often unexpected and rapid shifts in strategy. This may have worked well in Twitter's early days when he turned the rough-andtumble startup into a highly sought-after candidate by Wall Street for an initial public offering (IPO). Costolo struggled to define a clear and consistent strategy for a business that continued to lose money despite a tremendous cultural impact. This led to frustration and confusion among Twitter employees and other stakeholders. What Twitter needs, they argued, is a leader who takes a more proactive and strategic stance, as Mark Zuckerberg did when he declared that services on mobile devices is the future of Facebook and backed up this commitment with a high level of investments. In July 2015, Twitter co-founder Jack Dorsey returned as CEO; Dick Costolo tweeted "Welcome back, @jack!!" The question remains whether Jack Dorsey, who serverd as Twitter's CEO from 2008 to 2010, can turn the company around. He is quite busy, because he is also the CEO of Square, a mobile payment services company.47
Questions: 1. Why is Twitter struggling? What role do industry and firm effects play here?
2. What grade would you give Dick Costolo, Twitter's CEO from 2010 to 2015? Support your decision with specifics. Also, list some of his leadership strengths and weaknesses. What recommendations would you have for the new Twitter CEO to be a more effective strategic leader?
3. Why is a good strategy so important, especially at hightech startups like Twitter? Why is crafting a good strategy at Twitter so difficult? What are some of the pitfalls that a CEO of a company such as Twitter needs to watch out for when crafting and implementing a strategy?
4. Apply the three-step process for developing a good strategy outlined above (diagnose the competitive challenge, derive a guiding policy, and implement a set of coherent actions) to Twitter's situation today. Which recommendations would you have for Twitter to outperform its competitors in the future?