Popularity versus Substance
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It seems obvious to say that a business should be managed for long term value and not for short term gain. After all, the goal of any commercial venture is to embed sustainable profitability and ensure enduring growth.
But this isn't as easy to implement as it may seem.
Consumers don't always buy your product on your schedule. Competitors can play with price as a mechanism to move markets, throwing your strategy to educate buyers on the premium value model into disarray. The media may issue their verdict on your product, business or category prematurely (at least from your point of view).
In situations like this, what is your response?
Do you hold steady - despite the prevailing market sentiment? Or do you adjust, adapt, react to the situation and market activity at hand?
Your choice determines which game you're playing. Long term value or short term gain.
Public companies grapple with this all the time. Many walk this precarious line trying to keep all constituents happy in the short term while striving for longer term value. Not always successfully, because the pressure of short term stock price movements can be debilitating. (This is as true for the private company as well. They simply take their actions outside the media glare.)
Do you cut prices when a competitor does the same? Or do you double down and educate your customer on your value and impact?
Do you kill the new product because its development is taking longer than the market seems to think appropriate, even though you may be bought into the value for the future?
Whether public or private, the emphasis must always be to strive for long term value - and, as important, to be able to tell when a specific action is in the long term interest or not.
Benjamin Graham, mentor to Warren Buffet and the father of value investing, once said that in the short run, the market is like a voting machine - all about popularity. In the long run, though, the market is like a weighing machine - all about the substance of the commercial venture.
Our goal must always be to strive to operate as if the market is a weighing machine, and align our actions with this mindset.
