GOLDEN GATE UNIVERSITY

SAN FRANCISCO

ACADAMIC YEAR: 2023

DEPARTMENT: MASTER OF BUSINESS ADMINISTRATION

NAME OF PROJECT: EXPLORING VS EXPLOITING

ARTICLE REVIEW

SUBMITTED BY: ANKIT SINGH

Title of Article 1: FLEXPORT PLANS TO LAY OFF 30% OF WORKFORCE

About the Article:

• Author Liz Young

• Date Published: 5th October 2023
• Published in: The Wall Street Journal

Introduction:

Ryan Petersen, aims to stabilize the freight-forwarding firm's financial situation amid declining revenues. A
company spokesperson confirmed that steps are being taken to restore profitability while maintaining
customer service and support for clients. The layoffs are expected by the end of the month, coinciding with
several recent changes at Flexport. This includes Petersen's return as CEO following the departure of Dave
Clark and the exit of multiple executives in the past month.

Analysis:

Flexport, led by its founder Ryan Petersen, is planning a significant reduction in its workforce, aiming to cut
up to 30% of its employees. This strategic move comes in response to a substantial decline in the company's
revenue, necessitating financial stabilization. A spokesperson for the San Francisco-based firm has
confirmed that Flexport is implementing measures to restore profitability while ensuring minimal disruption
to customer service and support for business growth. The staff reductions are expected to be carried out by
the end of the month.
These changes represent the latest developments in a series of significant shifts within Flexport. Recently,
Ryan Petersen abruptly returned to his role as CEO, taking over from former CEO Dave Clark, who
previously held a senior position at Amazon. Clark's departure was prompted by disagreements regarding
the company's strategic direction and spending on new operations.

Over the past four weeks, Flexport has seen the departure or dismissal of at least 11 executives, many of
whom were appointed during Clark's tenure. Among them is Teresa Carlson, a former executive with both
Microsoft and Amazon, who joined Flexport as President and Chief Commercial Officer in January.
Additionally, Petersen has revoked job offers that had been extended to dozens of individuals who were
either newly hired or about to commence their roles at the company.

In January, Flexport downsized its global workforce by about 20%, resulting in the departure of more than
600 employees. This move was driven by declining freight demand and a strategic shift toward expanding
supply chain services. Subsequently, Flexport has been actively recruiting several hundred software
engineers.

The financial challenges facing Flexport stem from a reduction in shipping volumes and declining freight
prices, which have had a substantial impact on the company's revenue throughout the year.

Ryan Petersen is now focused on repositioning a decade-old business that has attracted a total of $2.3 billion
in investments from prominent entities in Silicon Valley, including venture capital firm Andreessen
Horowitz, MSD Partners, and SoftBank Group's Vision Fund. In its most recent fundraising round in
February 2022, Flexport achieved a valuation of $8 billion and secured $935 million in funding.

Connections to the course:

• I firmly believe that a good leader has a profound impact on shaping an organization's values and
the way people interact and collaborate. Flexport, a highly influential company, faced challenges
 primarily related to resource allocation. They had foreseen significant growth in the upcoming
quarters, but the results turned out to be unexpectedly unfavorable.

• Tichy & Bennis, Making Judgment calls, offers insights into this situation, highlighting that the
primary responsibility of a leader within any organization is to exercise sound judgment and
make well-informed, wise decisions that lead to the desired results. Flexport encountered
difficulties in adjusting to the evolving market conditions, underscoring the importance of
conducting stress tests within the company to evaluate its performance in worst-case scenarios.

• It is crucial to provide coaching and support for individual employee growth, as this ultimately
contributes to the overall development of the company. While Flexport actively seeks new capital
to explore fresh opportunities, it is equally important for them to optimize their current business
operations. Effectively harnessing their existing business is imperative.

Insights:

Several changes could have prevented the issues faced by Flexport. As a manager, I would have
implemented the following:

• While venturing into new business opportunities, it's essential to maximize the potential of the
current business model.

• Conducting an annual stress test of the company to assess its performance in worst-case
scenarios.

• Empowering employees for both personal and organizational growth is a key priority.
 • Identifying and addressing adaptability issues within the company is crucial.

• During challenging times, as a manager, I would lead by example, motivating and guiding
employees.

• Recognizing that Ryan Petersen exhibits traits of a closed leader, I would advise him to prioritize
exploitation over exploration.

• Striking a balance between exploring and exploiting, with a focus on exploitation in this case to
restore equilibrium.

References:

• Flexport plans to lay off 30% of workforce by Liz Young: https://www.wsj.com/articles/flexport-

plans-to-lay-off-30-of-workforce-3664315f?page=1
Title of Article 2: JUUL TO LAY OFF 30% OF STAFF AS VAPING PIONEER SEEKS MORE
CASH

About the Article:

• Author: Jennifer Maloney

• Date Published: 23rd August 2023
• Published in: The Wall Street Journal

Introduction:

Juul Labs is addressing financial struggles caused by the 2022 U.S. regulatory vaping product ban, which
remains in appeal reducing its workforce to around 650 from over 4,000 employees four years ago, aiming
to reduce operating expenses by $225 million and move toward profitability. Despite being the second-
largest e-cigarette maker in the U.S., it faces legal challenges and has seen a substantial decline in valuation
from its $38 billion peak in 2018.

Analysis:

Juul Labs' decision to cut around 30% of its workforce comes as the company grapples with significant
financial challenges and seeks to either raise capital or sell the business. The root of its troubles lies in last
year's U.S. regulatory ban on vaping products, although this ban was temporarily suspended during an
ongoing appeal. Juul's efforts to secure a deal with a larger company for sale, investment, or licensing have
so far been unsuccessful.

These layoffs will reduce the workforce to about 650 employees, a substantial reduction from the over 4,000
employees it had four years ago. The company anticipates that these cost-cutting measures will lead to a
reduction of operating expenses by $225 million and help move the company closer to profitability, reducing
its dependence on additional capital while awaiting the FDA's decision on the future of its products in the
U.S.

In a bid to shore up its finances, Juul has been seeking to raise $1 billion from investors. The uncertainty
surrounding FDA clearance for its products has forced Juul to demonstrate to potential investors that it can
achieve positive cash flow and profitability. While Juul is no longer the leading e-cigarette maker in the
U.S., accounting for 25% of e-cigarette sales in U.S. retail stores, it has managed to stabilize its sales after a
significant decline following the FDA's temporary ban on its products in 2022.

Juul has also faced substantial legal challenges, including lawsuits accusing the company of marketing to
underage users. These legal disputes have resulted in settlements totaling around $1.1 billion with multiple
states and territories. While Juul has secured equity investments to cover these settlements, its valuation has
significantly declined since its peak valuation of $38 billion in 2018. The company's financial stability
remains precarious, with the outcome of the FDA's decision pivotal to its future.

Connections to the course:

• I hold a strong conviction that an effective leader significantly influences an organization's values
and the dynamics of collaboration among its people. Juul, a company with substantial influence,
especially among the younger generation, encountered difficulties due to their oversight of
macroeconomic factors.

• Tichy & Bennis, in "Making Judgment Calls," provide valuable insights into this scenario,
emphasizing the leader's fundamental role in any organization. They stress the importance of a leader
being well-prepared and proactive. A leader often transitions swiftly from contemplating a course of
action to implementing it. This rapid shift underscores the significance of effective preparation and
execution. Juul's challenges stemmed from their inability to accurately predict macroeconomic
factors, which ultimately contributed to their downturn.
 • Juul's pursuit of fresh capital is essential as they await the FDA's verdict on their product's future in
the U.S. Simultaneously, they must prioritize maximizing their existing business operations and
exploring new opportunities.

Insights:

Shifting the focus to new business is the sole path ahead for Juul in the U.S. market. In my role as a
manager, I would have executed the following strategies:

• While maximize the potential of the current business model, venturing into new business
opportunities should be a constant practice.

• Incorporating the identification of forecasting irregularities into the fundamental strategy is

essential to prevent crises.

• A lack of adaptability can result in an organization being ill-prepared to face unexpected

disruptions, which may impact its financial stability and long-term viability.

• Leadership approach aimed at inspiring and assisting the team during difficult or turbulent
periods is the way forward.

• Following Kevin Burns' resignation as Juul's CEO in 2019 amid increasing scrutiny of the
company's marketing practices and a public health crisis involving vaping-related deaths and
lung diseases, K. C. Crosthwaite assumed the role and seemed to neglect the essential scenario. I
would recommend him to focus on exploration rather than exploitation as the way forward.
 • A prompt embrace of fresh opportunities should remain a viable choice, with an emphasis on
exploration in this instance to regain balance.

References:

• Juul to Lay Off 30% of Staff as Vaping Pioneer Seeks More Cash by Jennifer Maloney:
https://www.wsj.com/business/retail/juul-to-lay-off-30-of-staff-as-vaping-pioneer-seeks-more-cash-
7a89d05f?mod=retail_more_article_pos58