Book Lou Today

Why the Quarter-to-Quarter mentality is killing business

I love business, I admit it. Think about this: Everything in your life, repeat everything is the result of an idea that came to life through some sort of business. Whether product or service, someone had an idea and cultivated it to a state of marketability. Some ideas (Uber, Facebook, Amazon) are better than others (feed mayonnaise to tuna fish?) and the market then decides who lives and dies and sometimes the lower quality solution wins out (Betamax anyone?).

However, there is something in business that has bothered me for years, starting back when I was in my early career in the world of financial services. The quarterly mentality. It’s just so, so, so, what’s the word… Ah yes! It’s just so short-sighted. A quarter is 90 days, three months, 12 weeks, a season, barely enough time to implement a plan, let alone see any results.

I was always fascinated by corporate earnings – did they meet or beat last quarter’s 20% annualized growth rate? They came in at 19% and the stock tumbles. Next quarter they come in at 22% and the stock skyrockets. What is going on here? My first thought is, ‘how can a large company continue to grow earnings at 20%?’ And even if they don’t, 19% is still pretty darn strong, so why the sell-off? Do you really wonder where generations get their instant gratification mentality? We’ve conditioned people to expect things to happen now or tomorrow when that just isn’t how things actually work.

There was folklore about Soichiro Honda’s 250 year business plan being laughed about by US executives. I scoured the web and could not find reference to said plan however; I did learn some interesting facts. He started Honda in a wooden shack in Japan in 1948. An idea, a motivated engineer and plenty of initiative, and 60 years later Honda is the largest manufacturer of internal combustion engines in the world. And we all know that everything they build lasts and lasts well. Here’s an fun fact: When Honda came to the US with their motorcycles, the first year was a money-losing proposition. Did they use the quarterly mentality? Nope. They adapted their plan, listened to customers, built what they asked for and within a few years had taken a large share of the market.

So what’s the point of all this? Simple: if you are running a company and you expect things to happen in a quarter and see tangible results, you really need a reality check. Fundamental change in 90 days? Really? That’s barely enough time for your staff to understand, digest, sort and internalize the ‘new reality’. Fundamental change takes more grit than that. It’s funny because people like to profess that change can happen in an instant (note the immediacy). I agree, but maintaining that change is what matters and that takes time, as in long-term.

Think about when you make a major purchase or acquire a new customer or client: do you look at the long-term cost of the purchase? $100 every year vs. $300 every five years? $1,000 profit today vs. $5,000 profit over three years? Which makes more sense to you? Depends how you are thinking doesn’t it?

Long-term thinking wins in the end. Quarterly thinking sets you on a roller coaster. Which can be a great ride if you like that sort of thing. Or end like Enron and MCI.

I prefer to do something more substantial. Why wouldn’t everyone?

Thanks for reading!