If business were simple, everyone would have one of those Easy buttons on their desk. Your short term focus each day would be to remember to push the button. All that’d be left would be to head home for dinner, or maybe out to the lake or golf course.
The next morning, everything would be taken care of. If you had any employees that you were thinking of letting go, they would’ve left resignation letters on your desk. If you had any openings, there’d be twice as many great applicants as openings. Customers would be lined up out the door, throwing money at your website, etc. All your accounts receivables would be at zero. No one would complain about anything. Vendors would do everything you asked on budget and on time.
Thing is, business isn’t simple, much less the fairytale I described. Yet it’s still easy to find people with a short term focus, which usually leads to poor decisions.
Short term focus? How?
When I say short term focus leads to poor decisions, you might ask “Why?”, even though the evidence is consistent and overwhelming.
Even when we exclude an apparent flood of unethical behavior, big companies and governments find themselves in bad (yet largely preventable) situations due to decisions made with a short term focus.
If you need examples, Google any large company name associated with a large layoff: Wells Fargo, Verizon, Deutsche Bank, GM.
Other than contractors affected by a government shutdown, it’s difficult to find a situation where 30,000 employees that you needed on Friday suddenly became unnecessary on Monday.
Companies keep thousands of employees past the end of a quarter to avoid hurting their stock price, or to avoid having to talk about a layoff (and its backstory) on a call with Wall Street. It can be as simple as an upper level manager delaying action on a situation they know they need to fix because their bonus is tied to end of quarter stock price.
On the government side of things, look at any large infrastructure project (say, US highway bridges) where ongoing maintenance has been delayed for years because the funding was “borrowed” for pork barrel projects. A decade or two later, someone discovers that thousands of bridges are structurally unsound.
Anything to make a sale?
In your business, the numbers might be smaller but the pressures are no less severe. Making payroll can cause business owners to do things they’d avoid otherwise. Almost every business has faced a cash crunch as payroll day approached, even if you were the only one on the payroll at the time. It’s tempting to make what seems like a good decision at the time. That’s the kind of short term decision I’m talking about.
For example, have any of your larger customers told you (not asked, mind you) that to do business with them, they’ll require 90 or 120 day terms because of “business pressures”? Some will reject that business, but many won’t because they need the revenue.
It seems like saying OK to such things is a good decision. We got a new big customer. Let’s tell everyone. We’re sure to get a bunch of business from other people when they see that GiantCorp uses us, so it’ll be OK to deal with undesirable terms for a while.
Long term pain
Trouble is, that rarely happens and those terms are rarely temporary. More often than not, accepting such ridiculous and downright abusive terms is a bad long term decision for a small company.
Short term mindset: “It’s OK to borrow a little to make payroll.” Problem is, even if you don’t borrow to make that payroll, there’s risk in this short term “win”.
Imagine your surprise, when a few weeks later that nice young man from GiantCorp advises you that their new payables policy is 180 day terms (hint: you can say no). If you don’t make a fuss (a short term focus decision), it means you won’t see a check for another 30 to 90 days – even then you might have to badger them to get paid.
Now, you have a payroll funded by debt and another coming in a couple weeks. Oh and GiantCorp just placed another big order today.
This is but one example of why you have to think and act long term, even if it slows you down a little.
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