When I was in business school 25 years ago, I don't recall the term sustainability used. Maybe it was, but it certainly didn't register in my brain. The mantras that I recall were return on investment, shareholder value, revenue growth, and driving efficiencies in the business.
But as I look at many of the challenges facing businesses today, it seems to me that the focus on performance and efficiency often comes at the cost of sustainability. This talk by Clay Christensen really drives that point home. The recent history of the steel industry in the US is a case study in managers doing everything they were taught in business school and in the end they bankrupt the business.
Going back to business school, they teach you the value of a business is equal to the present value of future cash flows. If the company is likely to stay in business forever, then the value is most likely way higher than a business that is going to be out of business in a decade. The present value of a hundred years of cash flow is likely to be larger than the present value of ten years of cash flow.
And sustainability is all about figuring out how to be in business forever. It is about business models that are win/win and lead to happy long term customer and supplier relationships. It is about avoiding the temptation to overeach. It is about avoiding the temptation to mazimize near term profits at the expense of long term health. It is about adapting the business to changing market dynamics. It is about building a team and a culture that can survive the loss of the leader and keep going. And it is about many more things like this.
I am tempted to develop a course on this topic. I think we need a lot more of this type of thinking in business. It seems in such short supply these days.
Sustainability requires constant re-invention of strategy, teams and products. This is a task that many are unable to do because of an anchor bias in their original views.
I think the consistent is — who is the customer we’re serving, what truly deeply is their need.
BC what you need to do is get known for meeting a ‘sustainable’/evergreen need they have, with excellence.
I have had customers (wholesalers) that believe they can control their customers. It is shocking.
That lack of humility is really a problem.But then again as those numbers translate into the financials, we market-facing folks are under the dual-pressure to make our numbers as big as possible AND be realistic about them. Obvs once they are written down, they are in marble and unfortunately they’re grounded in regular ole fickle people.
“Manipulate” you prob mean?
Yes. Although some people call it good salesmanship!
Brad I think that’s particularly the risk in tech startups as they are dominantly product-focused (not customer-focused). To ultimately make the switch to sustainability they need to re-orient to customer focus.
I had a professor in grad school that said, “a customer is not a customer until they pay”. He felt that a lot of the business at the time were too focused on giving things away and not creating the sustainability factor.
I worked in sales before going to Wharton and was really surprised at how little understanding there is on how excellence in sales actually works.I’m currently reading Michael Ellsburg’s book “The Education of Millionaires” which is great. He quotes that of Harvard, Stanford and Wharton, none offer a single course in sales and only Wharton has one single course in salesforce management.I personally believe that everyone — including every professor! — should carry a bag and work on 100% commission for a period of time.When you are creating a new market — basically both bringing to light a need that the (potential) customer didn’t know they had, you are tilling the soil for future trust, future sales, future referrals. Send an article saying “hey! saw you in this. Congrats!!” Send them business.The point is to have your network start working for you. That’s when it starts throwing off ‘passive sales’/income, which is what you need to hit the really big numbers. It’s when you’ve done people favors, helped them out in a bind — these are the people you can call when you need to pull an extra sale out of your *ss to hit the year-end numbers, or to apologize profusely and give a mea culpa when your company f-ed something up royally (which it will, I guarantee). It is a long-term view. And it’s all about sustainability.
Interesting point. I went to Columbia and the mood I usually got from a lot of my classmates that a semester in marketing is too much. They always said that marketing is common sense and it does not take much to put a good campaign together.I agree with you on the commission point. Really an entrepreneur is a person that is so committed to his idea that the he will do everything short of selling his children for the idea. Until you get passionate sales people, a great idea means almost nothing.Love your attitude, looking for a job?
unfortunately she runs her own startup
Awwww, I’m flattered.Alas, very committed to my current dream. As well as my current, very supportive investors. :-)Speaking of, I’d be remiss in a talk on sales if I didn’t make the ask! Check out http://www.honestlynow.com and lay a burning personal question on us (you can do it anonymously, too). You’ll feel better, I promise.
Yes, yes, yes. Ask Dean Harker of Wharton now President of UofD how much I bitched, bitched, bitched about this. Not marketing but hard core sales!
Yeah somehow they think that sales, variably, is (a) not learnable (you ‘have it’ or you don’t), (b) is so obvious that you’ll figure it out as you go, or (c) is ‘unintellectual’ and ‘low class’. When I was twelve, holed up in the back of my mom’s car for carpools she’d play these Mary Kay sales training tapes. They were fascinating! (e.g. the Lady in Pink herself would advise: “When you have to give a critique, think of it as a Praise Sandwich. Always layer the negative between two pieces of positive praise.”) I’d try the stuff out, for fun. And, whoah! It worked. In all aspects of life. (Another tip: if you can get someone to like you, they’re a lot more likely to help you.) There is brilliance in the basic. Every businessperson would improve performance by learning this stuff.
Not sure why I could not reply to your other comment, but….I know you have a job, and your startup looks very interesting. I was just trying to compliment your attitude.Maybe, I should offer you a board position….I will go to your site and check it out. I do not have too many burning personal questions, I am a pretty boring guy. But I will see what I can do.
:-)Not to worry brad! Fact is, you made my day. And also I never get even thought of for boards so that you even evoke that word is double-flattering. Have an awesome day.
You have a great day as well, and a happy Thanksgiving. BTW when were you at Wharton?
Taking the long view is something that Asian companies seem far better at doing than Western ones
Yes. We need to address that in our business culture
its starts with wall street. The markets are fickle. they will penalize sustainability in favor of near-term profits every time.
Yes. But amazon has managed to weather that storm while remaining focused on the long term vision
HAVE A BEZOS OR JOBS RARE.
i think they are a great exception.to you and i they represent a broad long term opportunity in web services innovation. (too many examples of how dope they are to name here)to wall street, they do a pretty good job of selling stuff online.do they stand alone in that duality?
Amazon practices uncompromising levels of quality which is explained within their TOU with the utmost clarity.
You have to factor in the protectionism when we talk about Asian companies e.g. Tatas have survived more than 100 years and have been a source of continuous innovation such as the Tata Nano. But they have also to be thankful to the lack of serious competition in the early days which allowed them to amass the necessary resources as well as experiment without too much fear of failure.Not being punished for failed experiments goes a long way – the margin of errors for new companies today is very low. Short term survival strategies have therefore taken a priority over longer term planning.
i agree. I have experienced working with many large asian companies who enjoy years and years of little or no competition – because they also enjoy a position of power that is totally unrelated to market forces.
Agree. Markets are nicer to huge conglomerates in India. No anti trust laws..
I worked for a Japanese public company in Japan for 6years. I can tell you they were happy with a 3% growth each year and about that amount in profits. They were fairly comfortable with status quo. If we want to take on that mentality as well we can probably be able to look at the longer run easier than out constant drive to create value.
Would love to read more posts on sustainability. To me the most important sustainability factor is accounting for all the cost of inputs (environmental and societal) in the business process. I believe the classic example is carpet company Inteface (http://www.interfaceglobal.com) which reduces environmental impact by recycling old carpet. As we are experiencing a complete sea change in how business operates, sustainability becomes a competitive advantage.
For sustainable accounting I’d start with interviewing all key stakeholders — customers, employees, vendors, community to find out who’s getting screwed and who’s generally disgruntled. Then put a risk factor on each of those.
It requires wisdom to pursue sustainability. The List of Oldest Companies [wikipedia.org] is always a good read.Also remembering how companies such as 3M started and how they were transformed into something different.May be now sustainability is being noticed because we are more conscious of the business cycles than in the past.
I did a bit of studying of 3M. What they had their innovation team do is hang out at their (long term) customers — literally hang out — and watch them do their work.When they’d see someone create a ‘work-around’ to get something done that needed to be done, 3M would rapidly create a product to replace the workaround. Because this was by definition a validated need.3M brilliantly let their best customers do their innovation ideation for them.And it’s a perfect example of why sustainable customer relationships are so important.
They also had (maybe still do) a process if your idea got bounced you could escalate up to get another hearing for it.
Nice! I did not know that.And so, in effect, these hybrid ‘customer dev’/’product dev’ people are advocates internally for their customers’ needs. That’s a great practice in sustainable business.
Nice…love this topic.Sustainability means having a purpose/mission that will be valuable and applicable 50 years from now.”We sell daily deals” vs “we bring new customers to small businesses””We are a search engine” vs “we make all the data in the universe easy to find””We have a social mobile app for checking into product categories” vs. “We sell hype to gullible investors”The Swan exercise: Come up with your mission statement. Something you can etch into marble today, with the vision that this same piece of marble will be set above the entrance to your HQ 50 years from now.Of course this is just a first step in creating a sustainable business….but it’s a big first step.
Scratch the mission into marble and then burn the boats!
I have become a walking cliche
Its a good thing
A walking cliche…on crutches. Now what does that do to the metaphor? Hope your knee is still healing nicely.
I turned the crutches in on day 7. A combination of strong and stubborn. Sounds right.
I *stand* corrected. Good for you, Andy.pathetic pun intended
You 2 are funny
Good man, glad to hear you’re back on your feet even if a little wobbly.
Cortez burned his boats. His men were well motivated by this action. It sustained the mission to conquer the Aztecs.
really well said, Andyhaving a core mantra you can go back to is so clutch and it needs to be big enough in vision that it will work across all the smaller decisions you’ll have to make along the way
I’m down for that course.
How do we change the public financial markets to be more longer term focused? The pressure to deliver “better” results in the short-term seems to be the end-all-be-all from them.
They know that value equals pv of future cash flows. Companies need to educate their investors.
Good point. I suppose there are some public companies with a long view, like Google, that don’t seem too troubled by what Wall Street thinks. And that’s a lesson they’re trying to teach their investors.
Bezos did an excellent job of this type of education. Even before the IPO he made it clear that the near term wasn’t going to be pretty, but the vision was clear.I think that the public financial markets are only as long term focused as management requires them to be. If companies are required to report earnings and forecast quarterly, then naturally investors will compare them quarterly, but management is still responsible for delivering the message about the bigger picture. If management can’t sell the long vision to investors quarterly then they surely can’t sell the vision to their employees daily, which means the employees probably won’t stay around for long either.
not using up all the water and all the air is part of the longterm
MAKE STOCK VEST OVER TIME ON CURVE.SELL NOW 50%YEAR 70%5 YEAR 90%10 YEAR 100%
If large investment banks were not also near term traders their analysts might be able to look more than one quarter out.But right now they get leaned to keep their vision very short term. It’s a long way from Goldman turning down hostile take over work to today’s world of multi second trading.
fix monetary policy. too much money creation always finds its way into reckless, short-term speculation.
We need to bring this into a startup/emerging company context. Christensen’s focus is largely targeted at big companies who have a problem with sustainable innovation and other issues. Fred, if you develop that course, I’m sure you’ll have that context in mind.Sustainability will mean different things if you’re a small company. It is directly tied to shorter terms accomplishments that are milestones towards long term sustainability. It doesn’t help if the start-up behaves like a big company from that point of view because the startup’s structure doesn’t have the baggage that big companies have. If anything, large companies can learn a lot just by observing how startups react to market changes and customer needs. If all large companies were truly agile, there wouldn’t be a need for all this consulting mumbo jumbo and lecturing that is just targeted and telling them how broken their processes and cultures are. Here’s the text of Christensen’s interview and there’s little that a startup could learn or doesn’t already know about from this. Better off to stick with Lean Startup by Eric Ries til you have $100 million in revenues or over 1000 employees. http://www.gartner.com/rese…
See the swaninator’s comment in this thread for how to apply it to startups
I agree with him. My push back was that we have to filter what gets said about big companies vs. startups. The lesson is that small companies need to continue being entrepreneurial as they grow. If they do, a lot of the current problems that big companies have today wouldn’t be there.
Wm, I respectfully disagree. The AVC post on vision from last week is on point here.Rather than shoving a whole salami of vision down your customer throat, slice the salami of vision thin before you serve it to customers.Big Co or startup, there is not substitute for knowing – one, two or 20 steps ahead of the other guy – the endpoints of a market era.Prof C – and this video is ridiculously clear and compelling – lays out the dynamics of how Big Co’s let little companies ‘drink their milkshake!!!’.He points the fickle finger of blame @ Biz Schools teaching the wrong metrics. I am more a fan of the natural consequence / biological school of markets: it states that if you made out like a bandit in the last era, you will not be able to adapt to the new era, for a variety of reasons.The cool thing about the List of Old Companies is that they picked markets that don’t really have eras (beer, restaurants, religious supplies). They don’t adapt as much as persist!Coke falls into that group – I am a diehard, Classic Coke drinker, BTW. It is THE heart palpating / mucus scraping / pupil dilating / pulse increasing nectar of the Gods, if you have a low resting heartbeat and low blood pressure. Instant anxiety affects in a bubbly format. There is no need to adapt Coke, just a need to not screw up the Real Thing.
I don’t think we disagree based on your analysis. You were able to properly parse out Prof C’s messages as they apply to startups/small co’s. My point was that it wasn’t obvious to the casual reader how these principles might apply.
love the “drink their milkshake” ref… and also a huge fan of Coke…that’s why Warren Buffet owns like 8% of Coke and like 10% of Wrigley’s, because these companies escape the innovator’s dilemma. Buffet doesn’t invest in companies that have to deal with an Innovator’s Dilemma.Buffet on drinking Coke: “the thing about Coke is it has no taste memory. I can drink one at 9am, 11am, 1pm, and 3pm and I never get tired of it… with things like Grapico, Dr. Pepper, Rootbeer, etc, you can’t drink them over and over again without it wearing on you”
Fred, on a completely different note – did my thanksgiving envelope find it’s way to the USV offices? 🙂
Yes, if it was a handwritten note. Thank you for that.
Yup. That’s what it was. I didn’t hear from Joanne on it so thought I’d check. Thanks for letting me know! 🙂 And thanks for being an inspiration..
I think I agree with you Wm, but in general terms aren’t start-ups more focused on _survivability_ before they can ever afford to focus on sustainability?
You took that words out of my mouth. Definitely true for a startup. You’ve got to survive the first critical steps before reaching the path to sustainability.
Does trying to survive preclude maintaining an eye on sustainability and allowing this to influence decisions and actions?
Doesn’t need to preclude. But priority is survival, I think.On Nov 21, 2011 9:21 PM, “Disqus” <>
Well you can’t sustain what doesn’t exist, so you are probably right.When I had my own (very small scale) business I tried to operate by certain principles based on the long term vision of where I wanted the business to go, but there were so many immediate realities that pulled at me that I didn’t focus on sustainability. Sometimes I wonder what types of decisions I would have made if this had been more top of mind.
P.S. That’s another reason why more from @fredwilson:disqus on this topic can be so valuable. He understands the startup’s survival pain (sometimes agony) and yet can balance this with a long-view perspective necessary for sustainability.
Love the Ted Leavitt quote from that interview: “People don’t buy a quarter-inch drill. They buy a quarter-inch hole. You’ve got to study the hole, not the drill. The drill is just a solution for it.”
Very interesting insight.Amongst the very best finish carpenters in the world, they all universally worship at the altar of the “blade” first and the saw second.You can have any type of saw (table saw, chop saw, compound miter saw) but it is the blade which determines the smoothness of the cut.The Holy Rosary of the saw is its alignment or squareness.
I’m quite sure I learn at least one thing from you every day. It’s becoming a thing. A good thing.
Agreed. I think there is something to learn from Prof. C, but I was thinking the exact same thing this morning:Best for entrepreneurs to stick with the Lean Start Up methodology.Well said.
Great topic. It’s really something woven across everything the company does.One area that would need to get covered is a good segment on sales. Call it strategic selling, sustainable selling, SPIN selling. Whatever you name it, the point is — prequalifying business partners and customers and starting off relationships right that are grounded in mutual success.This is learnable. Not only with many courses but then fortified by ‘apprenticing’ for people who work this way.
It’s all about relationships. And sustained relationships means doing the right thing. So you’re spot on with “starting off relationships right…”
It is why my dad always drilled into me – Write Thank You Notes!
Put this into brand contact.Can you have a sustainable business without a brand that has true meaning and equity over time? I don’t think so.There are very few true brands that have sustained themselves over time from my youth till now. Funny…the two that jump to me are Porsche and Levi.
Coca Cola, VW, General Mills, Kellog’s, Morton’s Salt, Hebrew National, etc.I think the list is longer than I have time to think about it. I can’t say I agree with everything these brands have done to sustain themselves (e.g. less product in same size package for higher price), but they have sustained, nonetheless.
True, the list is endless for names we remember. Companies that have survived at retail. For me though it is way shorter for brands that still have meaning that is relevant and drives purchasing power for who I am today.The distinction may be somewhat fine-lined, but I’m interested in brands that have core value and that over time that value dna has evolved and changed as I have.
Sure, makes sense. I think I respect and have an affinity for a whole different set of brands that I had when I was younger. This is due to many different things. It makes me question the old adage that consumers acquire brand affinity when they’re young and then stick with those brands for the rest of their lives. I’m not buying that line.
I’m with you on that.The world and us keep changing and evolving (my new post is partially on that http://awe.sm/5aApW ).Morton’s may mean ‘salt’ but I only buy sea salt and never there’s. And as I follow my bent towards more eco/socio correct/organic/sustainable in most everything I consume, the brands have changed. To my point that very few brands have changed as my world has.And to your point, the upside for new products and brands to service our generations is greater, not smaller as the population matures and holds firmer to new beliefs.
911 & 505’s (An advantage to not living in the city is that you can enjoy both.)Porsche has had to adapt and change with models and model years.Levi’s not so much.
Thanks LEI had an ’86 911 Turbo Porsche Coupe. I would buy another one tomorrow if I didn’t live in NYC. The Whale Tail is a design work of genius both engineering and to touch the soul of the driver. Ageless.I’ve switched from Levi to Earnest Sewn (a great brand) and prob not switching back
I can’t wait to go on this track which is only about an hour from my office: http://www.njmp.com/club.htmlEarnestSewn.com is a fascinating brand (I never heard of them before your mention.) A good example of niche execution. Like opening up an Italian restaurant. Not new or novel, strictly execution.Apparently the founder left the company because he wasn’t having fun but I wonder what the real story is.http://www.businessweek.com…
Jealous about the track.When I got my Porsche, my friends bought me some hours in a track north of SF. Super fun.Earnest Sewn is a great brand. Great jeans as well. Thanks for the link,
This is/was my Porsche.Thanks for making me find this ;)Whale Tail’s rock!
Nice. (And I would imagine that the women that were in your life around the same time period, well, you don’t ever give them a second thought, right?.) By the way if you ever want a good city car try a mini cooper “s” convertible – it’s a blast to drive in confined areas. I was thinking that since cars are an emotional buy the 2013 model year won’t be good for auto sales – that the “13” will have an effect on sales. I think they will stretch the 2012 year supply and bring on the 2014 year early.
I’m about 7 minutes in, and need to go to work. Christensen is doing a great job of with the story of the steel mills, and I’ll finish it later today. You’ve talked about Christensen a few times in the last couple of weeks…what about getting him to do a guest post here? I read his book Innovator’s Dilemma a few years back, and would enjoy hearing his thoughts to the AVC community.I also like the idea of you doing the course.
I want to interview him like i did with carlota
Hmm. Classic goose and golden eggs situation this one is.I’m finding that there is always a struggle between 2 extremes.Quarterly earnings vs 5 year plansMomentary happiness vs satisfaction Personality vs characterProductivity vs production capabilityUrgent vs importantAnd I’m finding that we went through a spurt of focusing on the quarterly earnings and the momentary spurts i.e. focused on the golden eggs.Now, as we have so much crap in the system, we are suddenly being reminded about the bigger picture and there’s a lot of talk about just that.That said, I think we’ll oscillate right back into something in the middle – it’s a balance between the 2 after all. However, I find that I have no doubt that, in the long run, focusing on the goose works much much better.And only that will make the world a better place..We need more builders..
Balance, or holding it all together, seems to be the toughest trick in the leadership bag.Internally, I have seen all kinds of functional imbalances reek havoc (sales out of control, admin destroying customer relationships,etc.). Balancing the long term versus the short (performance versus positioning) is not always a problem in startups (they don’t get to that stage), but it is almost always the gateway to opportunity (an incumbent focuses on the short term and does not see the unserved customers that are ‘out in front’ of Prof C’s diagram.Not too many banks on the list of Old Companies…….lots of breweries!
Stella Artois … since 1366
Serving up 7% less beer per bottle than every other beer…at a premium price. How many lessons therein?
Amazing how market position differs: Around here it’s known as “wife-beater”.
Huh? Don’t follow you.
If you ask the barman here for a pint of wife-beater, you’ll get Stella. Different market it appears.
Interesting. And Fosters? We call that the oil can. You too?
Fosters we export to unsuspecting foreigners.
That’s a laugh coming from the people who invented VB!
How will I know great Aussie beer when I come across it?
Try…Coopers Sparkling Ale (available at Outback Steakhouse of all places).Little Creatures Pale Ale (hard to get in NYC).
You earn that right after the first 600 years
So…9oz bottle in 2050 FTW!!?
And twitter will be down to 90 characters
Analogy doesn’t translate so well from atoms to bits. 😉
“Not too many banks on the list of Old Companies…….lots of breweries!”Love that!
I’m in business school right now and my teachers are trying to teach us to have “sustainable” business models. However, sustainable business models are more about companies’ impact on the environment. My Operations Management teacher told us that payback periods that were more than two years were rejected by most companies.
A different sustainability, indeed!
Yeah, like this one: http://www.bgi.edu/discover….I became disillusioned w/ my MBA when they focused our management class on Taylor’s efficiency experiments. I felt like it was completely pointless and that I could spend my time and money better in the real world. Since I dropped out, I haven’t had a single regret.
I went to BGI and the school is committed to sustainability the way Fred describes it, not just environmental sustainability. It can be a nebulous topic at times, especially when you’re in specific classes like accounting or marketing, but the push to think a little more systemically is always there. Way different than what I expected from B-school and I am thankful for it.
Good deal, thanks for broadening my thinking on that, John.
Two problems hereTwo year paybacks are too short for many important projects. We often wait a decade in VCSustainable doesnt mean green. It includes green, of course. But is so much more
“We often wait a decade in VC”That’s built into the model that you have setup with investors which is why they are comfortable with it. It’s not built into the way other things work normally.In sales this would be known as “managing expectations” as well as “deliver more than you promise”. Taking to @Tereza:disqus ‘s point and @bjboyle:disqus ‘s point (about not teaching sales in school) this is a concept that someone will quickly learn if they go out and do actual selling of anything for even a short period of time. You’ll notice also that companies also do this when they tell you service will be restored in 6 hours and it actually gets restored in 2 hours. (Part of the reason is also so you don’t keep bugging them..)
Sometimes non sustainable businesses pay really well. A few years ago in northern Europe some companies started to launch MVNO (Mobile Virtual Network Operator). They sunk the prices and then sold themselves to the network operators. They were not sustainable at that price level and were losing a lot of money, but the network operator bought them nonetheless because they were destroying the market. It wasn’t about how much they earned but about how much they cost to the network operators.
Sustainability is the difference between a startup that is a feature vs. one that is not. When a startup stops being a feature and starts becoming a product or service that is part of the every day lives of its clients, then it is on the road to sustainability.
making this the conventional wisdom — you can do the right thing for the world *and* your business — is the exact opposite of stripmining for profitin startup world, it’s also the opposite of building a company to flipit’s also the opposite of building a gap store on every corner and then having to close half of them
Do you really act differently in the first few years of your start-up building something to last and something to sell?I’ve always acted like my job was to create value. And that takes time and a team and culture and on….At a point, that choice comes up but for me at least, the initial stage has always been the same.
That’s doing it right
Fred, really agree with this. Interestingly enough, I think b-schools have finally realized this as well. Cornell has a sustainable global enterprise program that’s essentially focused on what you’re talking about here. While not everyone takes advantage of those classes, there’s no question that it’s had an effect on the culture of the school in a good way.
And here my friends, we have what is at the core of the demise of major labels in the music industry. Short-term thinking, fear-based decision making to prop up immediate numbers to satisfy bosses and share holders, no time to think ahead of what may be coming, etc.Sometimes you have to leave money on the table now, to make more of it later. It’s hard to develop a long-term vision if those in charge of you are irresponsibly pushing you for immediate results and continuous growth every quarter. PS Fun fact: 89.4% of the companies with over 100 years of history are businesses employing fewer than 300 people. http://en.wikipedia.org/wik…
When I think about sustainability, the company that comes to mind is AMZN and Jeff Bezos. I love the way they play for the future and ignore the analysts who only look at this quarter.
True, but you need a lot of cash in the bank or a great cash flow to afford doing what Amazon did. For the startups, that’s why you see these enormous rounds that Twitter, DropBox, Zynga etc.. have recently done because that gives them the freedom and independence to determine their own sustainability path into the future.
This is true today,But for most of their life people were saying they were going to crash and burn big time. It’s only recently (2008/09) that the stock and their financial fortunes have taken off.I admire that they stayed with their model when most were abandoning ship in 2000.
Yup. They knew their true north early and stuck to that vision.
Bang on Will – if someone asked any of these CEOs (you should include Mike McCue @ Flipboard) why they raised this $$$, the answer should be ‘because I could.’
Agreed. I mentioned them in an earlier reply
Even in this startup community looks like everyone is focused on “the exit”. It’s like going in to marige and thinking on divorce. I like to think of my company as I’m gona be with it forever, despite the fact that all options are open. That’s how I do better job today. And I enjoy more today.
I disagree. I think the exit can be the marriage. Granted, quite often the acquirer does little to sustain the relationship, and divorce ensues.
Thats the best way for sure
True sustainability means not wasting people. Large firms often “maximize” by cutting experienced people, and cutting training. Problem solved. (When I was a whippersnapper in the 90s, my boss laughed when I wanted to train guys in their 40s to use Excel. Yet they all learned to forecast client revenue; one became really skilled. Experienced people can often be retrained.)Business education involves many who lack significant experience in the corporate workplace. How does this matter? (The link is to a radio interview with Majora Carter, a thought leader on community and sustainability, who once told Al Gore not to waste *her*: http://being.publicradio.or… )
So much to write on this. I will reduce it down to just a few thoughts:1. Look up Apples life time stock chart. They are roughly double where they were just before Lehman, and 30x where they were just before the 2001 recession. Pretty awesome returns. 2. Our 28 hours a day newscycle feeds the drug of the instant3. Sustainability most applicable to platforms and brands. There are many companies that are changing in a pretty impressive way in the face of a business model or product cycle that will change, think Coke, others not so much like cigarette companies.4. When I think about what group set up the most sustainable platform ever, my mind went to the founding fathers of the US. The core value that got etched into the marble so to speak were freedom. Apply that core value into your platform and perhaps that will create the greatest long term net value. Lesson to be learned in today’s regulatory and lobbying world.
I agree that sustainability is essential to thinking in business.I read Richard Branson’s Business Stripped Bare as soon as it came out, and the point I remember most is his focus on people.Make sure your employees are happy.Make sure your customers are happy.Make sure your partners are happy.Happy employees, customers, and partners seem to lend themselves to a sustainable business.
True, but these are outcomes of other things you have to do internally so that everybody is happy.
I think people are happy when they are doing meaningful things, no matter which category they are in. An extremely short term POV in a business cannot instill meaningfulness. Why would I care about a product/service when I know it will be worthless soon?
I agree entirely. No excuses. Play like a champion.
I’m not designing for migration. I differentiate from everybody else with fewer levels of indirection, yielding clean code. My code is my product. That’s my business model. I planned to be wedded to x86_64 from the start. These people http://wiki.osdev.org/Projects are all laughably grandiose and delusional in their expectations.
Please do.Would be interesting to hear your views on how best to balance social and financial returns when designing and supporting start-ups.ThanksMark – London
I wonder if maximising shareholder value is an anachronism given the behaviour of the shareholders themselves (see graph):
Looks like we’ve returned to where we started.
That’s because most trades are via algorithms and the holding period is meaningless.
Yes, turning the market into a casino. Therefore it’s probably better to use the market to provide liquidity, but otherwise ignore it.
algorithms, by definition, are not investors.
t-shirt please. i think simpler is better though.algorithms are not investors
Lots of great comments in the thread – but I didn’t see anything on incentivesOne of the reasons why we have become so short term in our thinking – so unsustainable in our actions – is that the world has gone there.We have serious problems in the U.S. Solving them probably means making some tough choices which are likely to get politicians sent home at the next election – so they all take the easy way out and kick the can down the road. What’s the incentive to solve the problem in Washington D.C.?Likewise, in companies we used to see long careers where the corporation would protect its family in good times and bad – and now we see massive stock option grants at the top and computerized traders pushing buttons to determine whether the CEO is going to be worth $10M or $100M. So what’s the incentive for decision making there? Move the jobs, cut the labor force – get yours while you can – because sure as the sun will rise – there’s no job security but what you make yourself.Education. What’s the incentive there? Teach to the test or be censured.The environment. what’s the incentive there? Make gas as cheap as possible otherwise you get thrown out of office. Increase profits at the expense of tour future, why? because lobbyists allow it.Unless we drramatically realign the incentives in the system, we can’t even begin to think about sustainability – and unoless the framework for our thinking is malleable enough to change over time to reflect the current conditions, we are unlikely to be able to think sustainabiliy in the future.
so question: what is driving these sorts of incentive structures. what about our culture, what we do, that we can change to make things better?
This is probably one of the key points that is consistently missing from all of the economic and political debates that pundits have.The US and democracies in general tend to incent through the tax code, regulation, and in the worst case, through legislation. You need an effective mix of the three to go places as a country. That being said, none of these is as direct or as effective as directly mandated programs with incentives (e.g. government programs such as the Apollo program, the Manhattan project, and the New Deal) People are wondering why China is moving ahead relatively to the US. Look at the way they incent their bureaucrats. They have grand programs which inspire, motivate, and (probably) coerce their administrators into getting things done – high speed rail, world’s largest installed solar base, largest production capacity, highest number of science and engineering grads, …I am not a fan of their type of government, but their ability to plan and incent is definitely top rateEDIT: fixed spelling
“why China is moving ahead relatively to the US.”Up until now at least – cheap labor, less regulation, and the ability to do things that we can’t do in this country that are to numerous to mention.Oh, here’s one: the “one child policy”.http://en.wikipedia.org/wik…Regulation? I spent 2 hours today on ADA regulations for a parking lot and 1 hour yesterday. I’m sure that’s not something a business person in China is worried about.
Great point harry
Excellent point, and clearly expressed. Nice one Harry.
Great topic – worth talking about how to build sustainability into a business where competitive advantage has such a short lifetime (i.e. technology firms as opposed to steel companies). Jeffrey Williams at Tepper (Carnegie Mellon) has done quite a bit of research on this topic.
on the free courses stuff — i am a big supporter and believe it will help make the dream of fredland come true. #fsregarding sustainability, it’s all about gold. until gold is re-inserted into the global money supply, we’ll just go from panic to bubble all over the place. this is really difficult for startup; we are seeing this now with zynga, in that the value of the stock options is not necessarily correlated with the contribution to the firm. this can make people look like bad guys when they are not, create all sorts of genuine big problems about building meritocracies — in addition to larger problems VCs misallocating capital across the board, which results in lots of companies that fail and capital that gets wasted. this results in lobbying for more bailouts, which keeps the inflation cycle going, increasing wealth disparity along the way……the madness ends with the re-monetization of gold, an event most easily obtained IMHO through the reconstitution of the world’s money supply via virtual currencies in game-based economies.
Seriously, this comment screams Guest Post!Noone makes me feel like I know nothing while making me want to know everything, like the Kid.
lol thanks james! i love communities like avc, they are the best educational resource IMHO — we all get to learn from each other. for free!
Capital is not wasted in this way. This is the modern real time process of evolution. Trial and error works towards getting to the best possible outcome. Learn more from this TED talk: http://www.ted.com/talks/ti…Money quote: 10% of US businesses disappear every year. American businesses fail faster, learn faster, and evolve faster than any economy in the world.Maybe Gold will help, maybe it won’t.
Fail fast and lean startups are different than the misallocations that stem from excessive increases in the money supply- – increases that can only occur when money supply is left to the will of politicians rather than determined by free market value of commodities, typically gold. In any event, the only real problem is debt, which cannot be repaid in real terms; resolution of the debt crisis will ultimately require currencies to be re-priced so that they are in some way a function of the price of gold. #fs
In general, can’t disagree about M2 with you on that.I was specifically addressing the point about misguided VCs. VCs take capital from their Limited Partners in a way to reallocate funds that would not be spent as efficiently in internal R&D departments and return that capital to the market in a form of entrepreneurial R&D. The capital efficiency of moving this investment from internal to external projects is terrific for society, although the last 10 years of returns might suggest it is not so terrific for the LPs.
There is too much money chasing risk because govt has forced bond yields too low via monetary policy. Ie andreessen horowitz would not be able to raise a 900 mil fund if interest rates were higher, but with zero pct interest rates, more capital will chase risk. This does produce some jobs in the short-term, but ultimately it leads to bubbles and misallocation of capital, which in turn serve as a transfer of wealth from the public to the financial class- – which in turn results in social unrest, class warfare. Ie stuff like occupy wall st
Social Unrest and Class warfare long predated the move off of the gold standard.
Whenever I have brought that expression up I have been somewhat disheartened by the cynicism with which it is received – at best one can expect token-gestures and platitudes towards it as an initiative and being a core part of any business plan and company philosophy.I think it is largely because “it’s too hard” to visualise, let alone enact, for many in business – the mindsets of “think quarterly” and “window of opportunity” is embedded in so many, anything that is a little more profound and noble is lost on them.Anything which reminds us of our Mortal Coil sits uncomfortable with many – as we have seen with the banking institutions, the prevailing culture is ‘meme’ and short-termism….But, we can’t give up else the world will end up an even bigger sorry mess than it is right now – it’s a beautiful world, in fact, just needs some TLC – starting with business.I’m in-between projects right now and am really committed to ensuring that the next thing I get involved with, whatever it may be, truly embraces this topic and all it entails.It’s time to start building things – I’m tired of metaphysical money.
Fred – While I agree with the thrust of your post I think you are making some assumptions here that should be questioned.If you consider a stable company – one that is has done with growing, you can get a very short value horizon.The value of future cash flows beyond a certain date can be valued as a perpetual annuity or http://en.wikipedia.org/wik…The present net value can be found over the formula NV = A/rA is the annual income and where r is the yield, discount or interest rate.If the discount rate is 10% more than half the value is received in the first 8 yearsHowever, and this is where it becomes interesting – if there are absolute limits to growth limited by any limiting factor (oil runs out so sunlight etc) future value becomes infinite vs, 10 year value. Why because you cannot discount future value at all – Survival of a planetary population for 1 year and 2 years become equally interestingSo if you are investing for grandchildren the decision of which horse to back becomes very critical – In both cases the conclusion “Waste not want not is valid” ! – Sustainable investment always wins in the longer term !
There’s a distinction between “corporate sustainability” and sustainability. Corporate sustainability includes a big focus on green strategies and other dimensions such as social, cultural and economic. But sustainability in the context of this post is about the capacity to endure (and survive) for the long term.
Fred – Re >> I am tempted to develop a course on this topic. I think we need a lot more of this type of thinking in business. It seems in such short supply these daysI could not agree more – I blog because I assume I will die – a blog is a legacy (useful or otherwise) We won’t have a significant wealth objective at that point because too much money is bad for children and I understand that heavenly transfers are measured in different coinage
We overvalue money. Of course, there’s good reason to want to have the things you need. However, you have enough money that you will always have a nice house, car, etc., and if money remains to be your goal, then you are a fool chasing social validation, not realization of yourself.We always ask “How much?”, but rarely ask “Why is it interesting?”IMHO, we have allowed for financial success to substitute for accomplishment and imagination. Making-money is evidence of something uncommon, but not necessarily something of value.Sustainability is something that comes from the practice of people that value accomplishment and imagination. Boom and bust business is something that comes from fools.Unfortunately, fools provide for a lot of market action, and thus money-making opportunities for those that play derivatives./rant
Don’t agree. Boom and bust also comes as much from poor planning and misunderstanding the future.Lets pretend I manufacture chips – I would worry a lot about rare earth minerals. How am I supposed to know that next year someone will make a cheap nanocomputer made out of carbon. Oops?
I agree that is an example of a realistic boom and bust scenario. However, I don’t think it fundamentally underpins the trend we are seeing that rewards short-term profitability over long-term sustainability.btw, I probably didn’t need to use the term ‘fools’, but it was a rant. 😉
Rants are totally allowed.And yes, I do think we are screwed for not rewarding long term productivity over short term productivity. Still I think this bubble may be unique in that way.
So I have two very distinct and related thoughts about technology industries and sustainability.1) From a business practices point of view, the technology industry does not think about long term products. In fact, if anything, it seems with both hardware and software have planned obsolesce An example: when was the last time you heard of smartphone lasting 7 years. (anyone? I know exactly ONE techie person who purposely bought an older smartphone)For many, many industries, planned obsolesce is a bad move.Lets start with an example: the NYC subway. Let’s pretend for a moment we want to add some sort of sensor to all the tracks at a certain point as well as the trains so we can better manage subway traffic flow (totally reasonable). The way we work with computing today this would be a really unreasonable business. How could you make sure that your sensors are functioning 10-20 years from now? That there will be people to program and do data analysis and build new subway programs on whatever form of data is released?Now try that with an aquaduct. Those tend to get repairs maybe every 50-100 years….sticking a computer of any sort into that environment means planning on no one touching it for a similar period of time. Computing doesn’t seem to really be ready for a sustainable model.2) The other large issue of the term sustainability is a thought that I heard about preserving the environment A lot of people treat ecological issues as if we, humans, should disappear. Biologists find this a bit funny, because we are a species that does fit a niche. When we talk about environmentalism and sustainability we need to assume people are part of the picture in all of the things we do. Same goes with businesses and sustainability. Your business doesn’t exist in abstract with other abstract businesses. It fundamentally runs on people power and what we do in the business environment/niches. So assume you’ll affect people in all of the ways you possible can, including – how we react at home, food, age, family, friends. Because if you damage your people you’re really screwed your business in the long term.
For your technology examples, much of the problem is that the technologies used are not “open” in the true sense of the word.An “open” technology by definition should be easy to update or replace when it becomes obsolete without wreaking havoc and disruption on the surrounding ecosystem. Some technologies, like microchips, can’t be open since the state of technology changes so fast. Others like software or sensing have no excuse not to be open.
One of the reasons I chose the examples I did is that they are situations where it is very difficult to replace technologies. I also chose them because I think long term high tech has to cross that barrier to be sustainable and pervasive.And sensing today is very microchip dependent. Which is why these examples are poignant. Inserting sensors into these large scale city projects would change the dynamic of how we function – but it totally isn’t sustainable, so it isn’t done to the extent it should bee.
When the sensors approach free their maintenance will drop to a floor. I guess an even cheaper alternative would be sensors that grow replacements. Biological digital systems.
Biological may be interesting. The reason doing sensors like these is expensive is actually labor costs to go into tunnels, etc. Building big ass projects have large labor costs and material costs. To give an example: I have an ex who is a civil engineer on the Croton Water Filtration Project fixing NYC’s aqueducts. The estimated cost for the entire project is 2.1 billion dollars. Then they don’t touch it again for something like 50 years. The insides of miles of aqueduct are going to be rarely seen after the project ends. Plus there is no wifi down there. (etc)Building to last in these contexts is a hugely different thought process than high tech.
In the industrial design documentary Objectified, designer Karim Rashad talks about phones and laptops having a viable life of 11 months yet they are built out of materials that are not easily recycled. He semi-seriously states that designers should be making these devices out of cardboard because their shelflife is so limited. Perhaps tech hardware designers should be thinking about designing devices that can be disassembled and repurposed into reusable parts or just use materials that will fail due to entropy. That could be viewed as a sustainable strategy!
Context dependent. I’d actually much prefer if I could use certain technologies forever. Especially considering the pricepoint already being paid for the nicer end of tech
Shana, that would be great but with things like Moore’s Law out there a designer cannot design for the long term, at least not with technology hardware. Software has solved that issue to some degree by becoming a subscription with ‘free’ updates. Certain things like Rolex watches seem to be able to last forever but you certainly pay the price for that luxury!
Isn’t there a point where the fact that we have more processing power *from an individual perspective where I am a client* gives me marginal returns? Same with software – isn’t there a point where new features give very marginal returns? So why not create technology around that fact that can do some heavy lifting in industries and places we don’t see as consumers?
I think we’re seeing that with Apple’s Siri model. The phone has enough power to support the app at the source to enter and return data but the real power is in the cloud access to data sources that are constantly being improved and expanded. So, while we may update the client software for Siri (via the cloud) it probably won’t need more processing power on the device. So it gets more and more useful without requiring a device upgrade. This could be problematic for Apple’s hardware-centric profit model but they also hook the user into their system creating demand for Siri tvs and other applications, all using Siri’s learned understanding your personal preferences and foibles,This a big paradigm shift that has been coming for a long time. It is also a very sustainable model, something Jobs excelled at developing.
A neighbour just posted on FB that her sister’s 5 yo fridge has been deemed ‘disposable’ by the largest appliance retailer in the city.That’s a lot bigger than a Bic lighter – admittedly, Calgary is a boomtown at the moment, but it is shocking to think that much metal is to not worthy of a single service call……The longer term economics of owning things start to look goofy, if everything becomes disposable. Too many energy intensive / highly manufactured things are fashion accessories (cars, fridges, etc.)
agreed. meanwhile, trash is a problem. and when we start treating institutional level stuff (buildings) as disposable, then you got real problems. The economics of putting tech into these contexts makes for serious complications because we can’t decide if these are durable goods or not.
That’s a good point, Shana, about the human element in environmental sustainability. Some of this is worldview. My guess is that you and I share a worldview where humans are not merely an expendable part of the universe. Actually, several good points.Looking at another point that could be made from your NYC subway illustration, it seems that the company’s sustainability is based on whether it sees itself as a “sensor” company or a “subway traffic flow management” company.Vision must transcend technology.
I’m not sure if it is a vision thing as much as “high tech doesn’t think/plan for these sorts of realities yet”
The reason you were not taught sustainablity 25 years ago is it was built into the world view of the professors & students.When it’s just an understood part of building a good business = a sustainable business then you don’t need the word “sustainability” in the vocabulary.Reminds me of “sustainable design” in arcitecture & something I once heard. An old time arcitect was presented the idea of “Sustainable design” — his reaction was basically “what’s the big deal? That’s just good arcitectural practice!”
I think you are spot on about culture. People come and go. Shelf life of the people going into companies is getting shorter and shorter. But culture? That’s sustainable.Companies that get it right (like Southwest, Starbucks) have been able to thrive for decades and will continue to do so.
First off, you should. I’d take the course.Second off, you do realize (I’m sure you do) that you are talking about the re-invention of business on a new paradigm. You’re right, of course, but that’s what we are discussing.Third off, I wonder if there’s a way for you to have your community co-create/collaborate on the course.Some of us could be guest presenters/create the presentations? I don’t know, but it seems like your blog is the model (on a small scale) of a sustainable investment that pays off over the long-haul AND if the model is building great relationships and nurturing them over time (you’ll recall, that was the marketing paradigm I shared with you when we had coffee–www.communitydriven…), then it makes sense that you would leverages that same sustainablity-based community to create your next service offering.
And, as usual, you motivated me to blog about it: :-)Profits and the Social Revolution: http://jer979.com/igniting-…
cool. i will read it when i get back to internet. i’m reading and replying offline on a plane
all great ideas. let me stew on them
I believe sustainability is a reality that every business will face sooner or later. The win : win scenario has many dimensions: society, environment, and culture. Being sustainable will inevitably be seen as the essence for success.
Sustainability, as it relates to startups, is only achievable through product development and financial management. The product should drive the business model and proper financial management should provide adequate cash flow. When lucky enough (or experienced enough) to have this work correctly the team can create a virtuous cycle. While important, I don’t believe the softer elements like messaging/mission or branding are quite as critical.
One of the reasons I read this blog daily is to understand the mindset of the entire entreprenuerial eco-system including founders, teams, investors and markets. All too often investors encourage founders to go for the short term, build ‘traction’ and get out fast. While I do not believe we can measure the viability of any business model beyond ten years (five?), I think your exploration of sustainability is important because short term thinking is hobbling innovation. A daily skim of Techcrunch for example (or any other tech blog) provides endless examples of start-ups being funded that zero sustainability. Most do not even have a revenue model yet they can raise millions of dollars in the hope that a Google will come along and acquire them early in the process.This is great if the founder is happy with a quick payday. However one has to wonder what a company like SIRI would be worth today. Apple spent $250m for them on 2007, a great result for everyone involved. But it would likely be worth billions today.It is great to hear an investor encouraging sustainability, knowing that their value may be many times the return on a quick exit.
One of the paradoxes that I see about factoring sustainability is the reality that everyone’s incentives are tied to short-termism. People get hired and fired based upon short term performance, investors buy and sell based upon short term performance, business is won or lost based upon short term performance.There are certainly exceptions where long-view planning rules the day (Apple, Amazon, the oil companies), but it begs the question of how do we change the incentives or at least start to accurately weight the incentives into compensation, financial markets and customer purchasing decisions.Otherwise, it’s what I call the 1.0/3.0 Paradox. We are all driven by 3.0 aspirations, but typically we make our buying decisions on 1.0 immediate needs, and 1.0 becomes the 2.0 legacy that shapes 3.0 future potential.
I would like to hear your perspective on the sustainability of an idea. If an idea has a limited value, timewise, why pursue it? Many start-ups don’t pass this litmus test…
i wrote a post about “bridge technologies” a while back. i don’t like visions that are inherently short lived
I teach the course you want to develop: marketing management.
where do you teach it?
I teach 35 students per semester at Indiana University SE. Sustainability is what I cover right after chapter 1, which is “What is Marketing?” when I get into vision and mission, to explain why businesses stick around, and then cover all the rest you mentioned, plus innovation, strategy, pricing, marketing channels, new product development, data analysis, integration, etc… It’s comprehensive.I must mention, however that I teach as an adjunct, meaning I am not a tenure-track professor that has been lifelong-steeped in academia, and that is my sole career. I’m a businessman who is focusing on what he deems the most pertinent material from the course scope, as I see it relevant in today’s and the future’s world. That’s hard for professors to do that only read academic journals and the WSJ, the attempts of which I experienced in school as well.Also, many of my students are employees of the local Fortune 500s, who are looking to move up. I know my audience, and spending precious time covering items in depth that isn’t going to benefit them in their career track doesn’t provide a very good value for their $.
Thank you for doing what you are doing. We need more of it
Sure, being stupid is bad.There’s a fundamental problem here: Usually the short term is much easier to evaluate than the long term. Since commonly two investments with the same expected return but different variance in return have the investment with larger variance worth less, the more uncertain long term value is worth less.Yes, ‘discounted net present value’, or for a probabilistic treatment, the expected discounted net present value, sounds like an appropriate measure of value, but in practice there is little to no ability by the public, the stock market, or a major fraction of company managements to evaluate that measure for a public company. So, there are traders in the stock market who drive the stock price by looking at a time horizon of one quarter down to a small fraction of a second.Heck, still better than expected discounted net present value would be to see the future exactly via a time machine, and we can’t do that either!Yes, easy to see that one of the most difficult problems in both society and business is pursuing easy to see short term gain at the cost of more difficult to see long term loss. Two examples:First, in society, for an easy to see short term gain, we pushed for house ownership by people who could not afford the mortgage payments and blew a housing bubble; for the difficult to see long term loss, when the bubble burst we wiped out much of our banking system, ‘drained the economic lubricating oil from the crankcase of our economic engine’, and created The Great Recession. Clinton and W both saw the short term gain much more clearly than the long term loss.We’ve, what, in the short term run up maybe $10 T in national debt (that we can pay off only in the long term) trying to get out of The Great Recession. So, at $200,000 a house, that would be10^13 / 200,000 = 10^6 * 10^7 / 200,000 = 5 * 10^7 = 50,000,000houses. Hmm!More generally, we’ve done relatively well handling risks except for long term ‘systemic’ ones; so, now commonly the problems we see are long term ‘systemic’ ones, now, e.g., sovereign defaults.Second, in business, accounting ignores most of the important ‘internal state’ of the business which means that there is a temptation to neglect this internal state of the business to raise easy to see earnings for a few quarters soon at the more difficult to see long term cost of the core strength of the business. E.g., in spending on new projects, in the short term accounting handles the costs and value poorly:So, net, if a business wants something new, then it is easier just to buy such a business, say, for stock. If the business bought has sufficient earnings, then the accounting for the buying business continues to look good, e.g., without lower earnings, P/E, or stockholder’s equity. So, in-house, long term projects for new ideas suffer. And, net, there can be a long-term loss because likely the company could have developed the new business in-house at much lower cost than buying the outside company.One of the advantages of a private company over a public one is that it is free to pay better attention to long term value. So one solution is just for a company to stay private and avoid the brain-dead evaluations of the accountants and stock market.Engineering can be terrific at long project planning, e.g., can bid on a project for a new dam, long highway, or large building and complete the project on time and within budget. Still, typically otherwise business is quite poor at planning or evaluating longer term projects.Since typically a company with really good long term value is undervalued, Buffett can get big returns for decades.
Yes! Ever since your interview with Carlotta Perez, I’ve been thinking about how to integrate her concepts into cleantech & sustainability, especially in terms of startups. However, sustainability education is the foundation for any progress. Like far earlier debates about the roundness of the earth and it’s orbit around the sun, sustainability is analogous in that science has proven the conclusion, yet society has yet to catch up with that reality. Climate change and the need for sustainable practices will eventually be accepted as fact, but changing behaviors and worldviews always encounters resistance. It is never easy to change something people hold so dear. Therefore, the question is: how do you educate and inform people about the necessity for sustainability in a compelling manner? Al Gore’s efforts with “An Inconvenient Truth” and “The Choice” app/book scratch the surface, but he is a polarizing figure and his work is filtered through that lens. The message needs to be spread much further.
There seems to be a two separate components. One is sustainability of a business as a profit earning entity (keeping everyone paid), and the other is sustainability as legacy. There really aren’t that many hundred years businesses except in finance. It seems that once a company had innovated, their sustainability is an attribute of how well it maintains power. It’s just really, really, really hard to remain profitable under the constant onslaught of Schumpeterian creative destruction. Wouldn’t it be better to let a company die after it had been innovative, rather than sticking around to interfere with new innovators (e.g. Microsoft)?I like what Mark Zuckerberg said (at Startupshool) that a company is the best social organization to make something happen. 10 years is enough to change the world. Do you really want a company that exists for 100 years? To exist that long a company always has to be political. Apple had changed the world. But is it really good if Apple figured out a way so that 100 years from now the App Store is STILL the only way to sell Apps?It is said that the only way for Physics to advance, old physicists would have to die. So it is that old companies have to die to make way for innovation.
Appreciate the counter point Howard. What’s your take on family businesses?
My dad was in the family business. In fact, his was the first middle-class generation in Taiwan. My grandpa started the business, and before that we were farmers.I like family businesses. There is a lot of love in a family business. And fraternal rivalries, ha.IMO, it’s like an extended lifestyle business to cover those you care about. It’s not the most efficient company in the world, and risks decline when the spirit of entrepreneurism is gone (say, when the first founders died). The Chinese has a saying, that “wealth does not pass through three generations”, which highlights the risks of nepotism.The standout exception is Nintendo, who struck the creative pot of gold by hiring Miyamoto.
Fred: I have been saying for years that the people who brought the economy to it’s knees either did exactly what they were taught (in business school) or all screwed up in exactly the same way at exactly the same time. Which seems more likely that thousands of people screwed up at the same time or that what they were taught led them astray?Allen
I’m late to the party today and it would be hard to say something better about startup sustainability than @andyswan:disqus ‘s comment.But if there’s one lesson I’ve learned the hard way, it was this:When you’re a startup, don’t be scared to do some unsustainable things at first.If it takes manually preparing some data or doing a one-on-one screen share to get your first few users on board, do it.Sure, you can’t sustain that much of a workload to get user #10,000. But you’re not on user #10,000 yet. And you will learn a bunch of things about your users and their problems by doing the hard, manual, unsustainable work at first, and then systematically figuring out how to systematize it.Amazon does this incredibly well. Their customer service delivers really high quality and efficiency for their customers, while also being incredibly low cost and automated, allowing them to sustain themselves on tight margins.Google, on the other hand, tends to try to skip doing anything unsustainable in the first place and takes a long time to figure out how to fix real world problems.
Jim Collins had a couple a good books on this (“Good to Great” and “Built to Last”). One of his case studies was based around HP (the HP of several years ago) and it’s ability to constantly survive and innovate because of the culture and values that were embodied in the company – the HP way. The irony is HP also makes a great case for the point you are making. Today they are struggling to survive and it could be argued that this is largely driven by diverging from the values that were originally instilled their. They underwent a brutal cost cutting initiative a couple years ago that resulted in a huge loss in R&D and worse yet, the loss of good people. The long term affects could be disastrous. All this for short term gains.
For me its not so much about sustainability from a B-School perspective as how much you are growing or draining the inherit value of the business.This is too squishy for most business schools to explore, much like sales which I also think is so important.I’ve written about this here a bunch. Short term its better for Fred to have sharp elbows, long term no way. Short term its better to focus on how you can shave costs by putting shitty parts into cars, long term no way. Its easy if you are Bob Nardelli or Eddie Lambert to drain the value out of Home Depot or Sears it takes a while for people to realize that beating down your employees and suppliers means a shitty experience buying products that are only built for price. Its really hard to measure if you are growing or destroying the value of your business but you know it in your gut.I’m not a big mission statement guy. I think you can say we are going to be a great place to work where we have the best team and we are going to solve the problems that we work on honestly, with a long term focus. That would be the mission for all my companies.
Seeing your post Fred – it kind of clicked for me and connected 2 other articles that I read in the past week. I read Nassim Talebs article in The New York Times about the solution to the issues of our financial system and today’s HBR post by Ron Johnson about retail. I put forward the following simple thesis – a sustainable business is a business that puts focus on the value delivered to the customer while an unsustainable one is focused on the value extracted from the customer. Case in point – Ron Johnson mentions that retail should be built around helping the customer make sound purchasing decisions. The purpose of retail is connecting the customer with the right product. If this is achieved the customer will come back to be connected again. Anyone can carry items like Macs (as demonstrated by other retailers) but few can help the customer by the right one.The other connection my head made when thinking about this is Talebs cancel the bonuses article. At first I was wondering how else would you motivate high performing people without bonuses but then it hit me. The current compensation structures at leading investment banks and hedge funds do not motivate the bankers to help their customers make fair valued transactions. They motivate to make big transactions. What if you actually think this product is not really good for the specific customer? What if your customer shouldn’t acquire the company you are investigating? If you still opt for the sale or transaction significant value to the customer is lost but you get your bonus. We need to find a value for the customer based compensation system.What do you guys think?Oh btw – I am a fresh MBA from Vlerick (vlerick.com) and we had a full course on Corporate Social Responsibility and Sustainable development. While it was not the most exciting course – I find I am starting to apreciate it more and more.
a customer focused compensation system sounds great. but not so easy to measure
I’m so happy you have written on this topic.I got a masters in sustainability measurement and management – it is a broad topic and often easy to dismiss in the name of profit margin and short term economics.I am right now going through a personal crisis wondering about the value of my studies and my work.Glad you see value in it Fred. Thanks
maybe you are plying your trade in the wrong place??
Is there scope for this work in America?My work at the moment is in Australia and largely environmental based. Here, they are trying to place a financial price on the environmental costs of industry. It’s a contentious topic. The truth will come out in the future but at the moment it is hard to see the wood from the trees.Your description of sustainability as good business management as a whole is more appealing than the purely environmental.
@Tereza mentioned this word in a commentbelow, but I think one key thing for companies to do to acheive sustainablilityis to think of STAKEHOLDERS rather than just shareholders. This is truefor public & non-public companies. I’ve been investing in the Japan equity market for the past 10 years & thisis something you hear time and time again – yes comapnies pander toshareholders, but they are not top of the list and companies here are not underso much pressure to meet the numbers every quarter. Yes, this has issuesfor corporate governance and overseas investors kick up a fuss from time totime about being ignored, but I think that a stakeholder-focused business planleads to more sustainability.Fred – I think that a discussion ofshareholder vs. stakeholder would be a good post (in or out of your proposedsustainability series).
Thanks @teegee:disqus . Indeed it was deliberate. One must serve all of them sustainably: customers (channel partners, core customers and consumers/end users), your people, vendors, and shareholders. Possibly (though hopefully not) regulators. Your neighborhood and ecosystem.I’ve posted this before, but it’s a classic. The Johnson & Johnson Credo: http://www.jnj.com/wps/wcm/…
couldn’t agree more.. business schools have changed their curriculum to answer just those questions
Thanks for the link to the Clayton Christensen presentation. I found it particularly insightful from 41:30-47:00.
Sustainability, what a volatile subject! It’s amazing where business and society is so far removed from an innate, way of living that many of our great-grandparents practiced naturally…It didn’t take a business mind, or high-tech education, it was part of our ancestors birth right, who live directly on the hardware, in a low-level existence – there had to be a certain harmony of that existence between man & earth, and survival meant being prosperous through generations of kin-folk.But should it dare be said that it was business schools that first derived the metrics of sustainable growth, progress and what it means to win in business? Obviously there were key metrics left out, not considered, purposefully overlooked, or down-right unmeasurable that has escalated the need to inject that old forgotten word that Fred has pondered…Sustainability..The last I checked, his title still says “I’m a VC” not an “ecologist”, which is very intriguing because it seems he’s contemplating the day where business, investment & returns are not merely judged by it’s perceived value, immediate problem it’s solving, market potential, or exit-strategy, but perhaps what that business stewardship of money & resources, people & planet, and perhaps a long-tail revenue/profitability strategy? Now that is a thought!I agree, it has to certain start in business school, but certainly can’t end there, because the collision of short-term value business culture versus the other eco-extremist is upon us and entrenched on both sides, and it may take something catastrophic for those that are left to refocus. Don’t get me wrong, I’m still an optimist…it’s just sustainability can not be done in a vacuum – It’s going to take the whole community. As an entrepreneur I’m bent on weaving it in to our startup’s DNA and culture. It damn sure requires a steely conviction, that we’re ultimately accountable to one another and stewards of precious resources with a generational perspective.This is a great forum to seriously express this topic as none of us can be sustainable as a lone wolf & make an impact, we must collaborate deliberately. It takes innovation & creativity to make recognizable change…and many of the comments here make me feel hopeful this can be achieved. Fred, please let me know when you start developing the course, I’d love to participate.
Great post. Thanks for the link to the video. Couldn’t stop halfway once I started watching. Extremely thought provoking, especially for people running companies.Been a longtime reader and posting for the first time. Tracking number of people commenting for the first time might be an interesting metric for your blog posts. I’m sure some posts would be better than others at this 🙂
I dont track first tine commenters but i do try to welcome them. So welcome!
Net Present Value is designed precisely to devalue or discount cash flows which occur far into the future, which is exactly at odds with the concept of sustainability. Sustainability assigns higher value to the ability to generate value far into the future, in fact perpetually. Much of our entire economic system of value and trade is based on the fundamental equation of NPV, and in my view this represents a fundamental flaw from the perspective of sustainability. To use Fred’s example above, the NPV of two scenarios using identical recurring cash flows, exit multiples and discount rates, the only variable being length of time, NPV returns identical results for 10 years versus 100 years.While I do respond to the notion that a dollar today is worth more than a dollar tomorrow, and while I find truth in the typical economist’s answer to extreme long term analyses: “In the long run, we are all dead,” I agree with Fred here even though he may have got it wrong on the math. In fact, that is precisely the point. He shouldn’t be wrong, but he is according to our prevailing conventions. This is but one of a many pervasive examples where our conventional valuation methods depart significantly, sometimes extremely from “real world” or intrinsic values. These departures between pricing and value are in fact the very ones which create the kinds of opportunities seized upon by venture capitalists and those intelligent enough to see beyond the way our excel spreadsheets, college professors, investment banks, or rating agencies tells us how to evaluate certain assets or companies.Much like a programming language, which has certain idiosyncrasies that create long term, unintended glitches and limitations, so too are our economic paradigms wrought with bugs and flaws that mislead our leaders into making decisions based on these flawed paradigms. Our system of valuation does not account for the finite nature of the majority of the resources we are burning through, and we have completely ignored the fact that one cannot, in reality, externalize costs.The new economy, which is being created by today’s entrepreneurs and financed by VC’s like Fred and others, begs for a new system of value, one that is capable of establishing new benchmarks for valuing sustainability and eliminating the false notion of externalized costs. In doing so, we just may be able to proceed forward into a future where we don’t have to hurry up and make a multiple of the perceived living cost for the remainder of our years now, racing against the clock that we set in motion against ourselves by eliminating our ability to make a living tomorrow.
I’m not sure that there is a problem with NPV calculations. You can always adjust for ‘sustainability value’ in your assumptions for the terminal value of the investment target. And if not, it’ll come into the purchase price as an intangible asset. The difficulty arises because the value you attribute to sustainability is so subjective (even more subjective than the assumptions in your DCF). I get what you’re saying though.
Thanks for your response. You’re absolutely right in that sustainability is currently a very subjective concept… which is exactly what I’d like to see changed. I’d like a discussion amongst VC’s or other types of investors to establish a more objective adjustment for sustainability that can be used for objective pricing negotiations, perhaps layering it on top of NPV where appropriate. The point is, there isn’t a benchmark and there should be for sustainability. Whether or not investors will use it is another matter altogether, but at least the concept should be addressed, and Fred’s post here is a good start
I am totally up for a new NPV
I once attended a very fascinating lecture by one of the authors of “Built to Change” (Lawler/Worley) with the subtitle “How to achieve sustained organizational effectiveness.” The title of this book made an indelible impression and comes to mind often. A nice irony is that the foreword is written by one of the authors of “Built to Last.” It is made clear that b2Change is more of a sequel to b2Last rather than a slam.I’m guessing that you would approach this from a different angle, plus you would bring in the tech perspective. Seems like this concept of sustainability would be more challenging for a tech company even though the idea of change comes with the territory. But not all change is created equal or is productive– or leads to sustainability. I live in an area where the fire department occasionally sets controlled fires to remove the conditions that contribute toward a destructive wildfire. Seems like this has implications for how companies deal with change. Anyway, I hope that you act on the temptation to develop the course. It’s needed.Do we have to beg?
Gee, got up early this morning and have been traveling all day, check into a hotel this evening and get on the laptop to read AVC and I find one really AWESOME post by Fred with lots of really great comments!I wish I could have been part of the conversation this morning as this is a subject matter near and dear to my heart. I started to write about this subject on my blog http://changespeakingout.bl…Then I came across the Christensen video and I have been working on another blog post which I have called, “Going Long.” Its becoming more of a treatise than a blog post.We need to think of stakeholders in a broad sense, including customers, employees, and shareholders. It is absurd the number of old economy companies that see social media as nothing more than advertising and marketing….I mean, how many old economy companies have customer service that has not been outsourced?Employees, they are just an expense line on the P&L. I used to think that I had some sort of complex in regards to MBA’s and finance people (I have a natural defense mechanism to anyone who is a CFO!) but now I realize that the concept of “value” that I always saw was different and alien to what they had. I am also glad to hear that others are coming to grasp a need for a new way to think about business; when Jeff Bezo of AMZN talks about thinking out 5 to 7 years I can tell you for a fact that no one does that in the old economy world.
We are in sync these days. Thats a good thing
Put bluntly, I think a company that doesn’t see itself staying in the market indefinitely is a company not worth starting, or investing in.
Networked economies naturally accelerate the complexity and immediacy of interdependent between everybody and everything all the way up and down the food chain.No more linear, single variable, success formulas. That’s over, stick a fork in it!Optimizing capitalism is now all about adopting a much more complex organic metaphor.A metaphor that revolves around well distributed, homeostatic, networks of optimally interdependent profit that by necessity must include all the social stockholders.That network accelerated interdependence really gets the old prisoners dilemma right up in our face. It’s everybody wins or we all go down really hard together!Never mind postmodernism!We need to get on with collectively definingOrganic Process Literacy
that’s funny what you say, 10 years ago, at my business school, we were taught two distincts mantras:(a) Maximize the shareholder value(b) Stay in businessonce we had those two guiding statements, it was pretty easy to know what we were expected to do.
PART1: A StoryI’ve been looking for an exact quote for over an hour but I can’t find it so I’ll replicate from memory.The story is from a set of two books called Edible Forest Gardens and I believe demonstrates a commitment to sustainability on a scale we can only imagine today:It tells of an old university in the UK built in the 16th century. Somewhere towards the end of the 20th century a chance inspection found that huge 400 year old oak beams that were holding up the roof of one of the halls were deteriorating and needed replacement. The issue was escalated to the college management who didn’t know what to do – where do you find such huge oak beams today? So they called upon the university forest keeper – apparently there was such a role – a person not often called upon who was in charge of taking care of diverse forest lands owned by the university. This forest keeper happily notified them that when the hall was originally built, 400 years ago, oak trees were planted foreseeing that one day they would be needed to create alternate beams. These trees were well documented and protected for that purpose alone. PART2: An Ethical FrameworkI would also offer you as contemplation a sustainability ethical framework which is at the roots of a movement called Permaculture – authored by Bill Mollison (quoted from Permaculture A Designers Manual):1. Care of the earth – provision for all life systems to continue and multiply2. Care of people – provision for people to access those resources necessary for their existence.3. Setting limits to population and consumption – by governing our own needs, we can set resources aside to further the above principles PART3: Sacrificial LayersIn ecological construction there is talk of sacrificial layers – they are the external layers of the house which, when approached humbly, it is accepted that they will always, inevitably, succumb to the elements of nature (wind, moisture, etc.). In industrialized construction the state of mind is usually a forceful approach to finding solutions that will withstand the onslaught of nature – usually a losing battle. Ironically, longer lasting solutions are found through embracing the idea of sacrificial layers.What if you are pursuing an incorrect idea when you say “businesses that last forever”? What if business are merely sacrificial mechanisms that are in servitude of a great cause? Shouldn’t the question be how to incorporate “business” into a larger scale sustainable framework (see ethical framework above)? I would very much like to see how/if business could evolve in such a context!
A BeauT post Fred. Pondering it in light of the “economics of free” that so permeates the internet today. Free models that often acquire audiences as apposed to customers. sustainability in “free” more often than not means figuring out the illusive business model @ inception. There is more to success and sustainability on the net than merely gaining mass.
I think that maybe, rather than looking at the very large and powerful corporations that we all know by name, that we also might want to balance that with views of small, family owned businesses that have stood the test of time.PBS has a multi part documentary on NEW YORK ORIGINALS, http://www.nyc.gov/html/nyc…It is an excellent glimpse at small companies in NYC that have stood the test of time and are going strong and its also a very interesting tour of some really great places in NYC.
Christensen’s talk was interesting. His bit about Sony in the 1950s and 1960s got me thinking about Twitter. It is based on SMS, and Twitter grew at a time when the latest technologies (smartphones and tablets) were being adopted by… the wealthy and skilled (Christensen’s description). Was Twitter ever really in a technology platform based competition, or had the market already vacated that space?I like Christensen’s ‘Giant’ analogy.
According to you is Netflix doing what you call ” It is about avoiding the temptation to mazimize near term profits at the expense of long term health. It is about adapting the business to changing market dynamics”. How do you accomodate the kind of backlash it is getting. Do you think it’s temporary?
I think they have the right long term vision but the short term execution has been badly handled
Part of the problem is that there are just enough startup “winners” who are able to get in and out quickly that it creates a false path for others. Other startups see the winners and aspire to be them – to build something that will scale up super fast and be sold quickly for a big payday. The real reality is that it’s like winning the lottery. You’re not likely to win even though someone does win. Even in today’s world, most businesses – especially the ones that will be around for the long term – take a “long” time to build. Not two or three years – more like 7 to 10 just to get a firm foothold. But success is too often defined by monetary standards and by measuring things that are as of yet half baked. You don’t often hear people saying “I’m building this business to be here in 40 years”. Far more prevalent is to hear people lauding the startup that sold quickly. People are impressed by the quick exit, rare as it actually is. But what’s far more impressive is to build something that will be here after we’re all dead and gone. That kind of long term view is hard when the pressures from the environment are counter. It’s particularly hard when a company is measured after a few years since launch as not being a huge success relative to its peers that were already sold with the entrepreneur now off to the next thing. The operative word there should be “yet”. The company is not YET a success, If success is defined as building something that is here, and going strong, 10 and 20 years from now, it’s obviously not possible to evaluate it’s success at two or three years since launch. But yet that’s the environment that we largely live in. The media does not care if a business will be here in a year or two or a decade. They need todays story. Exits and the like are sensational and so that’s where the glory goes. We don’t glorify the folks who are trying to build things for the long haul. And unfortunately, since we don’t glorify it, we see far less of it than we should. My hunch is that our industry is exceptional in this regard. That there are industries – perhaps real estate – where the time scale is very different and the behaviors very different as a result. I’m speculating mainly. A few weeks ago I had a long meeting with an extraordinarily successful entrepreneur who lives in Austin TX. He’s made his money in and around tech. A vast vast fortune yet he is as humble as you would expect a person who has seen it all to be. He lives outside of the glare of the day by day world of techcrunch and the consumer web. We got to talking about timeframes and he said to me “I could never do what I do if I lived in, or cared about, the world of Techcrunch and silicon valley mentalities. My approach to building businesses is Warren Buffet like – I can’t and don’t measure success based on what happened this quarter or this year. My most successful business won’t even be ready for an article about is until it is 11 years old”. To him, 11 years is a relatively short period of time. In silicon valley mentality, that’s time to have started and sold three companies. But if we’re all being honest, the vast majority of those businesses that are sold after a few years end up amounting to not very much at all. They’re too young and fragile to be owned by a corporate parent and still made to be something great. And so they quickly become a a small company with big company problems. They are old before their time in effect. And they tend to die. Someone made a nickle along the way. An article about the great rapid success was written. But is that really success?
great comment. i agree entirely.
Thank you for this; I don’t often hear of people building businesses to actually own and run them for a while without selling them. I have to think back to the entrepreneurs of the earlier century (20th) and their philosophies of starting businesses and it rapid growth (while not as easily possible as today) didn’t seem to be the order of the day.
sounds very interesting especially in the light of a fact that many software companies are able to offer some value and for that reason they can get acquired by other businesses.. but they are never really profitable, not to mention sustainable.. Would be great to look into some businesses that have high valuations but hardly any cashflow to back up the valuation. Are these sustainable? And how? Thanks in advance!
I had a great professor at my College. He was an actual executive, mainly in manufacturing company quality management, but had great breadth of knowledge in running companies in general.I particularly remember two things he told his students:1. Managing people is hard, because they do irrational things.2. Run your company as if the company is forever.The latter advice was more geared towards book keeping and to warn his students of short-term gains that endanger the company future, but he definitely framed that with the sustainability being the ultimate goal of building companies.I wish I remembered more of what he taught, but at 20 you’re kinda clueless on what’s important and what’s not.
Read let my people go surfing, Yvonne beat you to it!
I lie awake staring at that all the time
From where sit, invaluable precious lives.
and including other people’s kids …
As a parent who doesn’t have parents, I am very much motivated by the need to develop my kids into independent, ethical humans who can think on their feet, make lemonade out of lemons, love and be loved, and care about the larger world and feel they play an important role in it. And to be able to do this if parachuted, alone, into a country of strangers.Life’s only guarantee is that one day, my kids will not have me around. So right now I owe it to them to love them, guide them, be there for them when they need it. But also to be out of their hair, let them make mistakes, give them enough space to figure stuff out, so they can do it without me. Hovering is bad. Teach a positive attitude.I inherited very little financial wealth. But somehow my parents did manage to train me to create relationships, figure out how to make stuff out of nothing, work hard, and know that “I deserve better”. That no one likes a complainer. Turns out their families each had made and lost fortunes multiple times. None of them were employed by other people (except my dad. and it did not go well!). It’s in my kids’ DNA to figure stuff out on the fly. My job is to mould that clay and then let ’em do it. They’ll be *fine*.Don’t be neurotic. They’ll smell it. Don’t stress about what you can’t control.The most sustainable thing we can do, for everyone’s benefit, is to raise lots of ethical little entrepreneurs.
have we left the world a better place to that which we entered? i was at a funeral of a dear friend of mine last week and i spoke about “givers and takers” in the context of the overall life experience. My friend epitomized that which has left the world a better place than which she found it – and that i vowed to focus more on giving to the experience rather than taking from it in her memory.That has a direct impact on Stella and Sebastian’s life NPV.
the owners built their houses on top of the highest hillssteelworks, 1881: http://www.superstock.co.uk…
Agree. Do no harm
“raise lots of ethical little entrepreneurs”Yes! (Trying to do my part on that one.)You do your parents proud, T. I’m sure that someday someone will say the same about your girls. (not that they don’t already, but you know what I mean)
Well said, Tereza. Very touching, indeed.