Today and Tomorrow
As a business leader, we have to take care of the present – revenues, customers, cashflows. And yet, if we don’t look ahead to the future, we risk losing out on the turns that the road can bring. We do this reflexively when driving a car. We are watching the car in front, the ones at the side, glancing at the rear view mirror to track movements behind us, and also observing the traffic movements much further ahead. This is what we need to do when running a business – focus on today and also build for tomorrow. As the business matures, the time horizon for the future will also become longer. Initially, you will look ahead a few months, then a few quarters and finally, a few years.
A new book by David Cote, “Winning Now, Winning Later” discusses exactly this. From the introduction:
If you run a team or an organization of any size, you face a seemingly intractable dilemma each day: Should you focus on making the numbers, often at the expense of the company’s future health, or should you prioritize longer-term strategies, your quarterly or annual performance be damned?
Most corporate managers and executives choose the first option, running businesses quarter-to-quarter to the detriment of long-term performance. Leaders might value broader objectives like sustainability, competitiveness, and growth, and wax eloquent about their commitment to these long-term goals, but when called upon to allocate scarce resources, they focus on the current year’s plan and do what it takes to meet their numbers. In their view, they have no choice: their job depends on pleasing bosses and shareholders today, not tomorrow.
The notion that there is no way to pursue long- and short-term goals at the same time, and therefore leaders have no choice but to embrace short-termism, is one of the most pernicious beliefs circulating in business today… Short-termism has become so rampant that influential leaders are speaking out against it, with some advocating that we relax the reporting requirements on public firms so that leaders don’t feel such intense and constant pressure to make their numbers.
We can’t regulate our way to long-termism—the problem is too complex and deeply entrenched. Instead, we need a comprehensive mind-set shift on the part of leaders and managers at every level. Somehow, we’ve convinced ourselves that we can only invest in the future if we let short-term performance tank. But that’s not true. Strong short- and long-term performance only seem mutually exclusive. As a leader, you can and must pursue both at the same time. Unless you do, you and your team or organization will never reach your full potential.
He then outlines three principles of short- and long-term performance: scrub accounting and business practices down to what is real, invest in the future, but not excessively, and grow while keeping fixed costs constant.
This is sound advice – and even more so for entrepreneurs. Think of the cars around as competitors, and the mountains ahead as the landscape. Even as you keep an eye on competition, make sure you are watching the changing scenery. In internal reviews, set aside time to discuss the long future. Some bets will not pay off immediately but need to be started now to make sure you are not caught unawares when the future arrives.
Tomorrow: Part 49