The Difficult and the Daunting

You may have heard recently that Amazon is pulling back a bit on hiring and warehouse space. With all their vast resources in strategic planning, the executive team there overshot on leasing square feet their forecasts no longer support. I suspect they will manage through this just fine in the long run with little impact on earnings, but it is a powerful reminder of how difficult it is to predict future business both when you’re in an up-market and a down one.

We all get this wrong now and again. It’s normal and usually navigable. The problems come when balancing present challenges heavily compromises a company’s future, or betting only on the future sours a company’s current performance to the point where no one cares about the future.

I am often humbled by the nagging paradox of making tough business decisions every day at the relentless pace of 24x7x365. Running a company in response to everyday circumstances in the present will always be difficult, Running a company for an opaque future will always be daunting.

We have to do both well to accomplish our current goals and set the table for the next generation of growth prospects. Favor either the present or the future too heavily and the question becomes whether you want to lose now or later. While that’s not an option any leader wants to consider, if we don’t see the delicacy in how one affects the other, our intentions can be undermined by our outcomes.

We often hear about the pressures of being a public company, how corporate leaders make choices to focus on quarterly earnings from which they financially benefit immediately over building strong companies for the long haul. I do think this happens at some companies where short-term stock performance can dramatically impact executive compensation. Too often those companies fall prey to what Clayton Christensen famously has called The Innovator’s Dilemma and allow their long-established norms of success to be fully disrupted by more nimble competitors.

There’s a more ironic take on this notion, where equity markets sometimes forgive emerging companies for failing to produce earnings at all in the near term in the hope that someday they will have gained so much market share that they will prove invincible. This all-or-nothing strategy has paid off handsomely for companies like Amazon that didn’t produce earnings for years, reinvested heavily in their growth, and today reap the benefits of that bet. Sadly, this example has been exploited by too many newly public companies that don’t even consider near-term profitability a goal, allowing lazy business models to overshadow unfounded optimism that someday their customers will reward them with enviable positions.

A company that bets only on the future, never becomes economically successful, and runs out of cash can be train-wrecked just as decisively as a once successful company that fails to address The Innovator’s Dilemma. If the executives steering either of those failures happen to be selling shares along the way to a company’s demise, a feast of lawyers will follow.

Inflation and rising interest rates make the cost of doing business higher for everyone. We painstakingly decide how much of these costs we pass along to customers and how much we absorb. The benefit of preserving current operating margins is always tempting, but the rewards of long-term customer loyalty and lifetime value speak for themselves. How do we decipher the balance between current and future financial results? Data will often shine a light on the path, but there are no conclusive textbooks with clear answers to these calculations.

It truly is hard to run a company both for today and tomorrow. We have to consider the staff sizes we need, the leases we’ll require, the stability of our supply chains, price elasticity, and the promise of our brands. We also carefully must watch cash flow, our balance sheets, compensation, incentives, technology advancements, and investments in future product cycles. What works today may or may not work tomorrow. It is seldom that what works perfectly in one set of conditions works just as well in another.

There are no perfect answers, but the fluidity of making a decision now for its short and long-term impact usually weighs heavily on those who wrestle with the impossible crystal ball.

Covid-19 has been a good reminder of how difficult and daunting decisions can be. We were all blind during Covid and it was easy to misread fluctuating data. No leader had substantial experience with stay-at-home working conditions. No one knew how long the pandemic would last, how it would impact supply and demand, or how it would impact investor sentiment. If that wasn’t enough of a challenge, most of what we thought going into Covid proved to be wrong, and most of our assumptions about how employees, customers, and investors would behave post-Covid have been equally wrong.

If you want to be humbled, try making decisions that address the unknown with this level of frequency. You’ll likely realize you’re wrong more than you’re right, but the less tangible skill we develop is how to rethink and react quickly when we discover we are wrong. That’s why the rewards for creating a company that is “built to last” are immense, but the odds of lasting fifty years are long.

When it comes time to decide short or long, know you have to do both, and do your best you to keep dialogue and debate flowing among diverse opinions. The decisions we make have an impact we might be able to see today, but unless you know someone who has a gift the world has never seen, we are almost always speculating on the impact a year or more from today. Sometimes it’s decades before we find out if we were right or wrong.

We choose to sign up for the difficult and the daunting. The longer I do this, the more humbling it is.

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Photo: Pixabay

6 thoughts on “The Difficult and the Daunting”

Excellent analysis of the COVID debacle. We were “blind” until we realized that we were blind-sided. Yes, the stats were easily misunderstood. But that had to have been intentional. I can’t tell you how many times I asked my own city to include age and number of comorbidities in their hospitalization and death numbers. I never even got a response from this government agency and their data delivery never improved. Statistical context would have helped schools understand the threat much better and it would have saved uncountable kids from extreme stress. It could have influenced less severe mandate decisions and prevented some child suicides. Further exacerbating the situation, an entire county largely followed the same restrictions even though certain areas had waning COVID cases. Only at the end of this past year did some districts start moving more independently.

In fact, some teachers were so scared that they were coercing students to take the COVID shot through peer pressure, by having them raise their hand to show that they took the shot. Some were shaming those who did not take the shot or wear their mask even when policy permitted. Such unprofessional and intimidating behavior certainly contributed to students’ emotional struggles. Some of the manipulation was subtle: Kids were told that the official reason for all protocols was to keep them “safe” when the word “healthy” would have been more accurate and less frightening.

People die of the flu every year. Comparisons between flu related hospitalizations and deaths from previous years also would have put our situation into perspective, but no one wanted rational analysis. The stats for COVID were also often false. The death rates were filled with numbers of people who died “with” COVID, not from it. And I know of one situation where the coroner’s office listed cause of death for two people who died in a car accident as COVID. Incentivizing medical situations and treatments–as our government did–will almost certainly lead to falsehoods and other problems, and it did. I’ve been hearing of this happening with others as well.

All of this made it even harder to get a handle on business and educational decisions. I’m so relieved to hear people starting to acknowledge that there were problems in so much of what happened to us. LA County just entered a vote of “no confidence” for Barbara Ferrer. It’s about time. In CA schools, the lock downs and dire scare tactics have led to a large swath of poorly educated, incredibly fragile students. And this is our future work force.

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Ken Goldstein says:

July 30, 2022 at 10:12 am

Thanks for your comments, Stefanie. We didn’t experience anything we perceived to be intentionally misleading. Information transfer through the pandemic was constantly changing, and government resources seemed exhausted no matter how hard well-intentioned people tried to help. The key element I saw missing was firm establishment of chain of command, which I think is essential in crisis, particularly as it applies to policy in a nation where we move seamlessly between federal, state, county, and municipal governance. I hope we learned from that.

As a technology and data driven company, we accepted early on the fundamental notion that scientific discovery is dynamic. Each day’s experiment is meant to advance knowledge, proving or disproving yesterday’s belief set. I think where the nation had the most trouble was establishing and maintaining a communication strategy that could roll with the fluid nature of establishing facts. Once trust is violated it is very hard to get it back. My sense is that is the residue of the rollercoaster. Establishing trust is essential to crisis management, and we have enormous work to do there to heal. This is all the more reason I wrote this article. We manage through noise, not after it clears, and right or wrong, our decisions are consequential with often unseeable impact.

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