The Business Metric That Matters Most
Beware executives: An obsessive focus on growth leads your company down a dark path.
Starbucks was a Wall Street darling for over a decade until 2008 when the cafe chain announced the closing of 600 stores. Last year, Starbucks’ value (market capitalization) was cut by 75% (from $35 Billion to $9 Billion, and now back to $12 Billion).
Short-term growth is Wall Street’s core focus. Financial analysts have their methods of evaluating a company’s present value. As history demonstrates, they are usually wrong.
An obsessive focus on top-line growth and expansion is guided by short-term thinking. Short sightedness leads to long-term financial repercussions—it also damages your brand.
There’s only one core metric business leaders should be obsessed with: Long-term profitability. Is your level of profitability increasing as years go by? (This isn’t a stat you can easily find on Yahoo Finance.)
Long-term profitability will help evaluate:
- How effectively you’re running your business
- How much income you’ll be able to distribute to employees, principals, and shareholders
- How flexible you can be for future innovation
- And most importantly, how well you’re serving your customers
Does ten years of double digit growth justify having to close 600 stores? Or should those stores never have been opened in the first place? When your company’s value is cut by 75% in a few months, you can’t blame a difficult economy or rising milk prices. The responsibility falls on the leadership team to focus on what’s best for the business and the community over the long haul—not on impressing Wall Street with more store openings.
(Sorry Mr. Schultz, it’s nothing personal. I’m just using Starbucks for illustrative purposes. I think you run a solid business overall and I realize you weren’t in charge for a while.)
Be willing to sacrifice short-term growth for long-term profits. Build a sustainable business for tomorrow and everyone wins—you, your employees, your shareholders and your customers.
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