Don’t put your shareholders first

The mantra in business these days is that everything should be done for the benefit of the shareholders…the owners of the business.

While that’s not a terrible idea in and of itself, it’s also not an idea any business should uncritically accept. At least, not if they want to be around for the long term.

The problem here isn’t so much the concept, but the way it’s generally applied.

“You can’t spend any money because we have to maximise the profits for the shareholders” is a common response to requests for an increased departmental budget. I’ve even heard that at a strategic level in corporate boardrooms.

But this overlooks one of the most important dimensions of business. The dimension of time.

You see, a good answer today isn’t necessarily a good answer tomorrow. And, in the corporate world, it’s not uncommon that decisions which are “good” in the short-term are distinctly bad in the long-term.

You can, for example, maximise shareholder profits in the short-term by switching off all your marketing spend. Depending what line of business you’re in, you’ll get away with that for anything from a few weeks to a few months and your sales will miraculously hold up regardless.

Not too far into the future, though, sales will start to dip. Slowly at first, and then faster and faster until your business is in free-fall…without a parachute.

Short-term you maximised profits. Longer term you probably destroyed them.

So what’s the right answer?

Well, very few shareholders would think what I’ve just described was a very sensible idea on any level. And put in those terms, you probably don’t think so either.

But what about that old machine you keep nursing along because you don’t want to put the capital investment request forward for a new one? What about cutting back on training today, but realising you can’t attract the staff you need in the future? What about taking a flyer on environmental compliance today, but getting caught for it down the line and having the good name of your business dragged through your local media?

A focus on short-term shareholder returns can be destructive to a business in the long term. And that’s especially true is the business only has one shareholder, and that shareholder is you.

Your best route to generating wealth from your business, both now and in the future, is to run your business to be the best business it can be for as long as possible.

Look after your customers today and you’ll have a lot more of them in the future. Nickel and dime them today and you’ll be well down the list when your customer considers who they want to place their business with next time.

Look after your staff today and you’ll attract the cream of people in your sector to work for you. There’s probably no better way to build a world-class business than to employ world-class people. But guess what…world-class people want to work somewhere they feel valued and welcome. If that’s not your business, they’ll go somewhere they feel more appreciated.

Look after your local community and they’ll help and support you when you need them. And they’ll probably supply a good proportion of the world-class people you need into the bargain.

Of course, you don’t need to do any of that. You could just focus on generating value for your shareholders. But that’s rarely going to turn out the way you hope.

Perhaps surprisingly, often the best way to build a more profitable business is to do things that might have a modest cost in the short-term, but which pay off many times over in the medium and long-term.

In our coaching we help you determine which is the right strategy in a particular situation. Sometimes, even if more rarely than people might think, the correct course of action is to cut back hard on costs in the short-term. Sometimes that’s the worst possible thing you could do if you’re serious about building a highly-profitable world-class business.

And it doesn’t cost you anything to find out how we do that. Just book one of our free Double Your Profits Strategy Sessions and we’ll help you identify a path to becoming a world-class business, highlight the obstacles in your way and leave you energised with the potential for your business in just a few short months from now.

Get all the details here…

Published by Alastair Thomson

Business and Executive Coach, showing business owners and senior executives how to double, triple and 10x their sales and profits.

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