Before I get started, I should explain the title of this post. I have a family friend that uses the phrase every time we talk about something that goes out of control. I like it because it's simple to remember, and it forces me to take a long-term view on things. It enforces the value of strong fundamentals and being well-rounded, but also encourages risk-taking and exploration within the framework of moderation.
One of the things that I've been thinking about frequently this semester is the idea of value creation, and how to sustain that over long periods of time in the face of growing short-term pressures (profitability, competition, etc.). When the world collapses upon itself because people and companies create artificial value, it becomes an interesting time to look for examples of companies that didn't get crushed and what discipline they used to avoid the mess.
Amazon is a great example of a company that takes very long views of their business, and allows those goals to drive their strategy and decision-making. Back in 2002-2005, Amazon's stock price took a beating after the DotCom bubble burst. They were widely criticized for making major investments that wouldn't pay off for years, and even then were considered very risky. But CEO Jeff Bezos continued to state that his strategy of innovation would allow them to grow in the long-run, and that he would essentially ignore short-term shareholder sentiment in order to execute his plans and go after new market-share.
But what about the shareholders? Aren't they supposed to come first in the outputs of a leader's decision making? How do you measure the patience they should have for curiosity around innovations? How do you get approval for those project which only have positive NPV's if the 100:1 scenario succeeds, and it's success depends on a market, business-model or technology that doesn't exist yet?
Amazon got through the mid-2000's and is now executing very well, and has expanded into several new markets which were not on anyone's radar screen in 2002. And even now, Bezos' need for continued exploration is driving a new phase of innovation.
By employing the philosophy and methods of kaizen across the organization, as Bezos does at Amazon, does this imply that we're going to hit more singles and doubles that home-runs? Home-runs get on ESPN SportsCenter, but they also are frequently associated with strike-outs. Do home-runs and strike-outs give us a better chance of long-term survival and success, or does a high on-base-percentage of singles and doubles lead to greater long-term success?
It's a difficult question to answer. Managers and Entrepreneurs get caught up in the spotlight of IPO's, big bonuses and buy-outs. But is it truly creating value? Andy Grove, former CEO of Intel, recently commented on today's Silicon Valley entrepreneurs and their lack of long-term thinking on building companies and value creation.
As I stated at the top of the post, I knew this wasn't going to be well organized or come to clear conclusions. It's just a set of examples and ramblings as I try and pull together my thoughts on the mindset needed to come out of these challenging economic times. It's the tradeoffs between Shareholders and Stakeholders. Between investing in innovation and investing in concepts that are believed to have positive NPV (in some known time period, using known business models). Between the agency conflict of long-term company values and near-term manager goals.
OK, I'll end it here for tonight. Lots of other work to get done. I'm sure I'll come back to these notes and thought-process at a later time, when I've got more examples from both sides.
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