I can’t get out of my head something that my friend Faris Yakob said a while back that I scribbled down but can’t find the source for. (Oh well, sorry Faris).
He was talking about that perennial exercise of companies to identify what their “mission” is, what their “purpose” is. You know. When all the uptights book time at some swanky location so they can let their hair down and get all starry eyed and tell each other that the reason they come to work every morning is just so they can bring joy to families. Or to make lives more magical. Or to help people rediscover their wonderful-ness. You know. The things that, after a few more days of expensively moderated powerpoints and brainstorms and group-breakout-sessions, ladder back to something that will go on the website, and maybe in the CEO’s next speech, but that no one else will really think about until the next swanky off-site.
What Faris said to all this was “No.” What he said was that the purpose of a company was to increase shareholder value. That everything it did, every process it set up, every hire it made, every decision it took, was measured against that one simple metric. Did it increase shareholder value? Because if it didn’t, the shareholders would make sure that you stopped doing it and started doing something that did. And right quick.
And what I loved about him saying this (aside from the fact that it sounded charmingly like an annoying little boy telling the fat king that he was, in fact, naked), was that it reminded me of an argument I’ve been having with people – clients, agencies, press, family members - for a long time. Which is that the business of a business is to stay in business and that everything else is secondary.
I’d like to say that I figured this out on my own but actually it comes out of something that Peter Drucker wrote roughly a thousand years ago: that really, there’s no such thing as “profits” because every dollar the company makes over and above costs should be pushed back into the company to make it more successful in the future. And that every dollar that isn’t, is one that paves the company’s path to failure and ignominy.
I’m not as draconian as the esteemed Mr. Drucker (and perhaps that’s why I’m not as successful), so I’m willing to allow some money to siphon off into other things, but certainly the intention is the same: if a business doesn’t focus on staying in business, it won’t have the luxury of providing joy and magic and wonderfulness. And if it’s not in business, no amount of joy, wonderfulness or magic is gonna bring it back.
Of course, this lays bare a problem at the heart of marketing that we never really talk about. That there’s a fundamental gap between what a business wants and what a customer wants (for the gap between what a business wants and what it’s employees want, just watch this endlessly). Because on the one hand, no business is going to go to market saying “buy our products so we can stay in business”. And on the other, if they did, no customer would listen to them because that’s not what they’re looking for.
The problem is that despite their wants being different, they both need each other, at least on some level. Customers need companies to make things that fulfill their, well, needs (food, shelter, etc.). And companies need customers to buy their products so they can stay in business. (and, for what it’s worth, society needs them both to keep doing all that needing so we have a functioning economy, though that’s a story for another day).
But because companies aren’t direct about what they want, they manufacture a false reason for what they’re doing, one that they think aligns more directly with what their customer wants. The “joy” and “magic” and “wonderfulness” stuff. The thing is, today’s customers know that a company’s first priority is to improve shareholder value. So they know that when companies say that stuff about joy and magic and wonderfulness, it’s bullshit. They know it, if for no other reason than they work for companies themselves.
This dishonesty in turn gives them permission to be dishonest right back. “You’re in the wonderfulness business, huh? Great, well, what’s ‘wonderful’ for me is not having to pay for your service, how about that?” So good bye print media, terrestrial radio, movie theatres and record labels – hello internet, internet, internet and internet.
Thus companies struggle to stay in business. Which does wonders for shareholder value.
But that’s fine because here’s the beauty part: shareholders aren’t actually interested in businesses staying in business. They’re just interested in extracting as much value from a business as they can before it goes tits up. Then they’ll move on to another business. Rinse, repeat.
The very things that a business needs to do stay in business do not increase shareholder value. Investing in the future does not increase shareholder value. Retooling your organization because your competitor has changed the game, does not increase shareholder value. Reducing employee turnover does not increase shareholder value. Creating long-term customer relationships does not increase shareholder value.
So why the hell are companies making shareholders the priority? Oh, right, because of the capital they provide. Better capital than what customers provide? “Well, you can’t count on customers.” Can you count on shareholders? Or more to the point, how do you know you can’t count on customers? What have you done to give customers any reason to count on you, other than feed them some crap about joy and wonderfulness and magic?
If companies made the shift from focusing on shareholder value to doing the things that kept their business in business – including the tacit acknowledgement that, yeah, that’s what they were doing – they would fundamentally change the conversation with their customers. It would give them permission to say “yeah, our prices are higher because we’re paying our employees – your family members, your friends, your neighbors and the customers of your business - a living wage, so they don’t have to live on food stamps while they work here.” Or “Yeah, our profits were down because we spent a lot of money investing in a technology that will help us meet customer needs faster, but that won’t go live until next year” or “Yeah, our distribution took a hit because we didn’t want to work with a company who treats its employees – your family members, your friends, your neighbors – like shit.”
To be clear, this isn’t some starry-eyed, magical, peace, love and understanding strategy. This is a business strategy that can free businesses from the idiotic shackles of shareholder value, enabling them to actually do the things that keep their businesses in business.
Assuming, you know, that’s something anyone wants to do anymore.