How Companies Grow, Short Vs Long Term Profits – Episode 7 of #InTheLab
The 20 mile march
In Jim Collins’ Great By Choice he tells the story of the famous discovery of the South Pole. Roald Amundsen and Robert Falcon Scott were both vying to be the first explorer to plant their country flag at the South pole. Amundsen did a lot of prep work. He learned about extreme cold, he lived with Eskimos to see how they deal with the cold, he researched the trip, he stashes much more supplies than he needed, just in case something happened along the way.
Scott was the polar opposite. Instead of a dog sleigh (Amundsen learned from the Eskimos), Scott used a “Motor Sledges” that failed within the first few days of the trek. Unprepared, trusting his intuition, he brought less supplies for 17 people than Amundsen brought for his team of five. Amundsen had a plan to travel 20 miles a day. Any more and he’d risk over exhausting his dog team, any less and he’d never make his goal of getting to the South Pole before Christmas.
On December 15, 1911 Roald Amundsen planted a Norwegian flag at the South Pole. Scott’s team was 360 miles back still. Amundsen didn’t waste any time. They day they arrived was the day they left, they had a strict schedule to adhere to after all. On January 25, 1912 Amundsen and his party made it home safely as the first crew to make to the South Pole and back.
Eight months later a British reconnoissance mission found Scott and two of his team members in a small tent frozen to death, a short ten miles from their next supply stop.
When we rush, we we move forward in haste, we’re bound to make mistakes. Planned growth, just like a planned trip cuts down on the surprises and allows people to perform at peak levels. Growth curves of 200, 500 or even 1000% may seem great, but all you’re doing is creating a bubble that’s taxing your people, and giving mediocre service to your customers.
Magic: The Gathering
Magic: The Gathering is a card game that was created in 1993 by some math doctoral candidates. It’s a game way you play others by creating combinations of the cards you possess. Just a few short years in and Magic had taken off. There was an entire market based around reselling the best cards that came with Magic. You see some of the more rare cards were being sold for a pretty penny. When new cards would come out, stores that sold them would sell them for a premium because people would pay. The price continued to rise. This worried the founders immensely.
They began reading into bubbles and similar industries where bubbles had occurred. Price increases to a point of no return, your bubble pops and you’re left was a few loyal fans but everyone else left the party. Finding out that most bubbles end in a bad way for those at the centre of them, our math majors had a perplexing problem on their hands, how do you deflate a bubble before it bursts?
In a recent conversation with a Saskatoon Mortgage Broker we talked about how you can’t just grow exponentially fast anymore (well in most industries). You have to slowly gain trust, slowly gain a following, and slowly you’ll grow into an amazing organization. Nothing happens over night.
Flood the market
In economic theory, if demand raises to a point that is much too high, supply will eventually react with a counter movement to offset the demand. The executive team at Magic performed a very risky, could have been business ending tactic, they flooded the market with cards. Not only did they increase supply to drive down price, they also created a “professional” league where they created a “norm”. The norm? To stop using the most powerful cards during regular game play, basing the outcome of a game on the players knowledge of how to use the cards, not just stacking a deck anymore.
It changed the game. Some people were pissed off beyond comprehension, those players quit. The bubble never burst. It’s now 22 years later and people are still playing Magic. Actually last year they had their best year ever, and Magic is Hasboro’s second best grossing brand behind the iconic Nerf.
Business strategy is not growing at all costs, it’s actually quite the opposite. It’s growing at a bare minimum cost, the minimum growth your team can handle each year. And if you asked Jim Collins’ how much that is he’d most likely reply “20% year on year is plenty”.
Why is it that so many companies seek more and more profit at all cost? They assume that putting up huge numbers is the goal of the organization, but at what cost? Growth for greeds sake is very dangerous. Planned growth, a 20 mile march style of growth is exactly what your organization needs to plan for. And YES, even if you’re a non-profit organization you need to grow year on year. If you aren’t growing, you’re slowly dying. Reminds me of that part in Shawshank Redemption, Andy turns to Red and says: “well it comes down to a simple choice then, you either get busy living, or get busy dying.”