business strategy

your job is to maximize profits… sorta

Leaders talk about their fiduciary responsibility to maximize profits for the business owners (shareholders). This is largely true, but in my opinion, incorrect.

From my point of view, their fiduciary responsibility is to maximize profits based on their clearly defined business strategy. This sounds the same but it isn’t. Not even close. Let’s consider some examples. (But before we do, I need to offer the full disclosure that my understanding of general business strategy far exceeds my specific investment knowledge. I’m approaching this from a business philosophy perspective NOT a business law perspective.)

A conservative investment company with a strategy that prizes long-term soundness above rapid growth has a responsibility to make different decisions and take different actions than an investment company that is trying to grow as fast as possible. I’m not suggesting that one strategy is better than the other – both have their place – but a leader that went for the quick buck at the expense of the long-term for the company seeking soundness would be just as remiss as a leader at the high-growth company who delayed growth when there were still funds available for expansion.

It was years before Amazon.com made a profit because they were aggressively seeking market share to position themselves for maximum profits in the future. Does this mean that top leadership was liable to shareholders. No. They had a clearly defined strategy and aggressively pursued it. In the early days, no one bought shares because of the steady consistent profits Amazon was making (it wasn’t). Rather, they invested voluntarily and eagerly because of the company’s future profit potential based on their strategy.

Some people invest in utility companies. It’s an unsexy, flannel nightgown of investments, BUT people do it because utilities tend to turn consistent and stable profits year after year. Investors aren’t expecting (or even wanting) maximum profits this quarter. They are seeking reasonable profits from now through eternity.

Again, companies have a fiduciary responsibility to maximize profits based on their clearly defined business strategy. The problems come when they: 1) don’t have a well-defined strategy; or 2) try to maximize both short and long term profits. Without a well-defined strategy they will just do a bunch of stuff and hope they are profitable. This is like trying to lose weight without any particular ideas about, say, nutrition and exercise.  Trying to maximize both short and long term profits is like going on a crash diet for the rest of your life.

Different investors have different investment strategies (gasp!) and are investing for different outcomes (double gasp!). No company has the responsibility to be all things to all investors – it’s folly to attempt it. Every company has the responsibility to be clear about their strategy and stick to it so that investors can choose and invest in the companies that best fit their needs.

what your business can learn from a 30 year old metal band

When is the last time that you – as a customer – were completely blown away by the unexpected value a business provided? I don’t mean that you were happy with the service or product. I mean that you were so delighted that you wouldn’t shut up about it. You told everyone in earshot, called up friends, emailed, posted it on Facebook. You went in expecting X and got X+10.

Now the tough question: when was the last time that you delivered that level of unexpected value to your customers?

Last week I came across a video on YouTube that caught me so off guard I’ve been annoying my friends with it, spending money on iTunes, and it has caused me to rethink my day job. I hesitate to share it because I realize that not everyone will, um, appreciate it as much as me, but even if you hate the video, the idea holds true.

Here’s the backstory: Grave Digger is a metal band from Germany founded in the early ‘80s. They never made it big in the US but were very successful in Europe. They were invited to play the 2010 Wacken Open Air Festival – an enormous 4-day event with 80,000 attendees, over 120 bands, and 6 stages. It’s kind of a big deal. They played on the main stage and chose to play their most popular album in its entirety.

That’s huge, but how do you stand out further? There’re a lot of other and bigger name bands, so what do you do to please your customer? You close with a crowd-favorite anthem about the Scottish rebellion (think Braveheart) AND you invite Van Canto, an A cappella metal band (don’t ask – it works for them) to open the song AND you invite the singer for Blind Guardian (another band barely known in the US and legendary in Europe) to sing with you AND you bring bagpipers on stage. It is so amazingly over the top, but I’m afraid that if, for some strange reason, one wasn’t into German heavy metal , the impact of it would be lost. The video link is at the bottom. Watch and enjoy if you want, but my point isn’t about music at all.

Maybe this will capture the impact: Imagine that you were a huge tech conference and excited about hearing Bill Gates speak. As he nears the end he surprises the crowd by bringing Steve Jobs and Mark Zuckerberg out to offer their thoughts on the topic. That’s the kind of value it is for the customers. Would it have been a good show without all the others? Sure. But it wouldn’t have been you-must-see-this amazing.

My point? If you’re not surprising your customers, leaving them dumfounded, amazed, and dying to tell their friends about your products or services, you’re a commodity. I can get Italian food from dozens of restaurants; what makes your restaurant better? Realtor? Hundreds to choose from, why do I care about you? Car dealer? Yawn – there’re 17 others lined up right next to you. Competing on price? I’m a loyal customer until your competitor has a sale. C’mon. Do better.

What? The music festival story doesn’t work for your business. You’re lying to yourself. Try harder. It doesn’t have to be festival big. Little things make a huge difference. Do you greet every customer? Not the, “WelcometoblahblahblahI’monlysayingthisbecausemyjerkfacebossisforcingmeto.” that even mini-marts are doing. I mean a look-you-in-the-eye-shake-your-hand-sincerely-I’m-pleased-you’re-here hello. There are businesses that do it; a few of them. They really, really stand out. And it costs them NOTHING.

My favorite  Realtor in the whole world consistently amazed me with his uncanny in-depth knowledge of the market and area, connections to very high quality repairmen, and tons of little touches. After we sold our house he gave us a $50 gift card to our favorite restaurant. Pleased? Surprised? Thrilled? Absolutely. Small touch, big impact, class act.

My favorite motorcycle jacket is an Aerostitch. I didn’t know I was going to buy one, but I happened to see their shop from the highway one day when I happened to be in Duluth (who happens to be in Duluth?). I went in on a whim and after chatting for a few minutes with the clerk, he INSISTED that we take a tour of the factory. The jackets were assembled on-site and I got to see crashed jackets that were being repaired, meet the people sewing them together, and yes, I bought a jacket. And for days after I purchased it I kept finding new pockets and features that only a very serious motorcyclist would have thought to include. There are a lot of ways they could have cheaped out, but that wouldn’t have inspired me to make a $400 impulse purpose at a time when I was making about $7 an hour. And it wouldn’t have inspired me to brag on the company 15 years later.

This is a long post, but an important one. Are you offering as much delight and value as your competition? Yes? Then you are instantly replaceable. Do better.