Inside Elon Musk’s cost-cutting drive at Twitter

From a secretive “war room” at the Twitter’s San Francisco headquarters last month, Elon Musk’s trusted lieutenants pored over a list of employees showing how much they cost the social media company.

The billionaire owner’s “transition team” headed by Steve Davis, who leads the Musk-owned Boring Company, then began to phone staffers. Some were asked to justify their role; other to recommend which colleagues to retain.

Those deliberations informed Musk’s latest lay-offs at Twitter, as part of his efforts to bring the lossmaking company to financial health while also battling an advertiser exodus and unwieldy debt servicing bill.

The February cuts removed more than 200 staff, but were still broader and deeper than many employees had anticipated, as they came after Musk had already laid off half of the company’s 7,500 workforce following his acquisition in October.

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The move wiped out large swaths of its business development and product teams, leaving Twitter leaner — and more unstable.

This account of the billionaire’s ongoing efforts to wrestle Twitter’s finances under control with his inner circle is based on interviews with current and former Twitter staffers, people aware of Musk’s thinking and his public statements on Twitter and to investors.

Musk, Twitter and most members of the transition team did not respond to a request for comment.

Formed in November, the transition team has often refused to immediately pay many of Twitter’s vendors, landlords and partners in the hope of keeping down costs, in some cases irking clients and leading to frosty stand-offs.

This push comes as Twitter is expected to roll out new equity compensation packages for employees in late March, two people familiar with the situation said.

For tax purposes, Twitter is in the process of calculating a new valuation to price the common equity in the business, which determines the value of staff stock options, the people said.

One of those said the valuation will probably be far lower than the $44 billion acquisition price.

At an investor conference hosted by Morgan Stanley last week, Musk said he had cut non-debt expenditures to $1.5 billion, from the $4.5 billion that he claimed it would have otherwise incurred in 2023, adding that Twitter could reach positive cash flow by the second quarter.

But a scattergun approach to securing efficiencies has left some current and former employees perplexed, who fear the company is exposed to costly legal and regulatory challenges later down the line. Meanwhile, the platform has suffered a rise in technical issues and bugs.

“Elon would always say ‘Let them sue’, it was a constant refrain,” said one former senior staffer who was let go in the latest cuts. “It’s all very short-term thinking.”

Musk’s decision to bring a rotating cast of leaders from his wider business empire to his so-called Twitter 2.0 comes down to a deep distrust towards its previous leadership and paranoia that disgruntled staffers might try to sabotage the business, according to people familiar with his thinking.

There is now growing expectation among Twitter rank-and-file employees, as well as some bankers, that Musk will eventually select a new chief executive and leadership team from among this circle of advisers — although multiple Twitter insiders complained of their lack of experience in social media or consumer apps.

Davis, an aerospace expert and longtime ally of Musk, has taken on a role similar to a chief operating officer, insiders say.

A former SpaceX employee, he decided how to allocate the job cuts along with James Musk, the Twitter owner’s cousin who is now overseeing the social media platform’s engineering work, and Jared Birchall, who runs Musk’s family office.

Among the more than 200 staffers culled were founders of start-ups that Twitter had bought prior to Musk’s takeover, and to whom the company will now owe substantial compensation packages.

These included Esther Crawford, Twitter’s former director of product management who had initially been tasked with leading Musk’s vision of allowing payments through the platform, Martijn de Kuijper, former senior product manager, and Icelandic entrepreneur Haraldur Thorleifsson.

Otherwise, Davis has been focused on efforts to reduce the company’s day-to-day costs, according to several people familiar with the situation. They added he was looking into data licensing agreements and policies at the company. Davis led the recent decision to charge third parties for access to Twitter’s developer tools, one person said.

Davis has demonstrated his commitment to the social media company by sleeping on site at its headquarters with his wife and newborn child in the wake of the acquisition, according to one person familiar with the situation, in a move first reported by The Information. “He is like a majority house whip,” the former senior staffer said. “His job is to push and push.”

Elsewhere, Musk is drawing on experience from his own equity investors in the deal.

Pablo Mendoza, a managing director at Dubai-based Vy Capital, which provided $700 million to the $44 billion takeover, has been working along with Silicon Valley entrepreneur Suril Kantaria, who founded health insurance tech platform Savvy, to assess what to do with existing vendors, according to five people familiar with the situation.

These range from landlords, software-as-a-service companies such as Salesforce, Adobe and Slack, insurance providers, security details, limo services and even fertility providers, two people said.

In some cases, the pair have focused on renegotiating existing contracts that were mandatory, or in other cases, they have simply terminated deals.

When telling vendors that the company does not plan on paying them, Mendoza has often resorted to pleading with them that his job is on the line, another person said. Nevertheless, he has enjoyed relative success, negotiating down some bills by between 50 to 90 per cent in some cases, the person added. Mendoza declined to comment.

Kantaria, meanwhile, also worked with James Musk to close one of Twitter’s three data centres. That move was hailed as a major win by Musk at the Morgan Stanley investor conference, but critics argue it could contribute to technical instability on the platform.

Another of Musk’s inner circle is Omead Afshar, a longtime Tesla executive who once led the company’s Gigafactory in Austin, Texas. He joined late last year, but was quick to earn the nickname “the Elon whisperer” among staffers because of his ability to read the mood of the mercurial billionaire.

At Twitter, Afshar is now helping solve “the biggest, stickiest issues at the company,” including cutting infrastructure costs, people said. Recently he has been involved in tense negotiations over large cloud spending contracts with Amazon and Google, two people said. Musk said at the investor conference that cloud spending was now down 40 per cent.

Nevertheless the intense cuts — and refusal to immediately pay multiple bills — has raised the spectre that Twitter will be hit with belated costs, legal challenges or regulatory scrutiny. Already, Twitter faces a lawsuit from its San Francisco landlord for not paying rent, as well as potential class action lawsuits for allegedly failing to follow and pay out the full severance packages during mass lay-offs.

“It’s smoke and mirrors,” one former senior staffer said. “[Musk] is doing all this deferring of eventual costs — so he can do the victory lap.” – Copyright The Financial Times Limited 2023