The reason to go into business used to be because you had a good or service which the public wanted or needed. Now it appears that the only reason to go into business is to make money for your investment firm. This is silly. Make a quality product or service, and you will make money. The irony here is that making a business for the sole purpose of making a profit removes your ability to sustain either. However that still hasn’t kept the finance department from making the attempt!
Two years ago Starboard Value suggested that Olive Garden stop doling out so many breadsticks and salad to their patrons. According to them the reason Olive Garden was such a financial disaster was because the restaurant was providing too much of why people went there in the first place. It had nothing to do with the rest of the food, or the level of service, but it was the breadsticks and salad causing the financial decline.
I have always asserted that you could open a restaurant in an outhouse and do quite well if the food is good. In fact my favorite eatery of all time is next to a packing house, and down the road from the sewage plant. The smells outside could choke a rat. However, once through those doors you are met with the aroma of Italian cuisine that likes of which make the Olive Garden smell like a can of SpaghettOs. I’ve had their phone number memorized since I was 5 years old. What makes them different? Quality Food. Excellent service. Plain and simple.
What happens in a lot of companies (and not just the restaurant business) is that once they establish a foothold in their industry they look for ways to cut corners. This immediately reduces product quality. You can only cut so many corners before all you end up with is a scrap of whatever it was you used to make on the floor with no customers to buy it. Still, that’s what Finance and Investment teams attempt to do. In an effort to cut costs, they destroy the product that got them there in the first place. It’s like watching pine beetles go through a forest. They eventually kill everything that sustained them.
What makes or breaks a business is not the cost of their good or service, but the quality. This is something that doesn’t often show up on a spreadsheet. Investment firms are so focused on the bottom line they don’t see what was making them the money in the first place. Too often Finance reaches into the daily operations of an organization and what you end up with are cost cutting measures that remove the reason people purchased your product in the first place. Any idiot can create a hedge fund, but only a strong focus on quality gives you Berkshire Hathaway.
I don’t just blame Finance. Managers are fully aware that many of these decisions will destroy the business, yet they fail to speak against them. I’ve worked for countless IT startups that failed their start because someone didn’t have the guts, or professional acumen to illustrate the stupidity of removing the most profitable product feature because “it costs the most to make.”
I’m not saying that an eye on cost is not extremely important. I myself have railed against sales people who think they can sell a product that costs 50k to develop for only 5k. How is a company to make a profit if you sell your product for less than cost? Quality costs money. If all you can do is sell on price, go work at a Best Buy. Leave the real sales to the grown-ups. If your sales conversation starts on price then you need to change the conversation. Give me that old school cold call salesman who could make a living knocking on doors and selling products to people, who 15 minutes earlier, didn’t know they needed what they were selling. Those are true salespeople. The rest are just order takers.
I’ve said it before and I’ll say it again businesses make unimaginable fortunes when they provide products people want to buy. Every company that sets their sites on their investors have limited vision and are only concerned with short-term financial goals. They’re the modern version of the 1850s snake oil salesman who wants to make sure they’re far away before everyone realizes that miracle ointment they’re selling is really just some high grain alcohol mixed with bullshit.