How To Be In Business Forever: A Lesson In Sustainability

Its time to kick off my Skillshare class on Sustainability. I will do a post each week this month (on Mondays of course). I will do office hours on Google Hangouts on Mondays at 6pm eastern for 30 minutes all month. We will do a project together which is to create a sustainable business model canvas. And there are groups you can create or join to allow you to collaborate with each other to complete the project and the class.

To join today's Office Hours on Google Hangouts, please check out the Skillshare page. There will be instructions there later today. [update: you can access the office hours hangout when its live here or afterwards via an archive here]

I will start with a post on Short Term Profit Maximization vs Long Term Business Health and then will end with some comments on our Business Model Canvas project.


If you want to stay in business forever, you have to focus on the long term. You must construct a business model that builds confidence and trust with your customers and keeps them coming back day after day, year after year.

Many business schools teach executives and entrepreneurs that business is about profit maximization. I don't believe that. I believe business is about making a profit that sustains the business and enriches the owners but is not maximized in any period (month, quarter, year). I believe the goal of a business is sustainability so that all the stakeholders (customers, employees, owners, suppliers, etc) can rely on the business for the long term.

Let's use an example. You own a business that operates on the web. You are a leading supplier of ecommerce to a vertical market. You generate $50mm in annual revenues and make a profit of $5mm a year. You see the launch of the iPhone and Android and think that your customers are going to want to connect to your business via their mobile phones. You ask your VP Product to scope out what it would take to build a comprehensive set of mobile apps that will allow this. She tells you it will take an investment of $5mm over two years to complete this project. You gulp. That is going to reduce your profits by $2.5mm a year in each of the next two years. What do you do? You make the investment because you must invest in the long term success of the business even though that is not a profit maximizing event. It may simply get you back to the $5mm per year of profits you were making before. There may be no ROI on this investment in a positive sense. It may simply be a defensive investment. You still need to make it to ensure you will be around for the long run.

Clay Christensen talks about this kind of thing all the time. Big company executives are asked to calculate an return on investment (ROI) on the investments they want to make. If the ROI isn't greater than some minimum hurdle, the company doesn't make the investment. And so along comes a smaller competitor who makes the investment and they eat the big company's lunch.

ROI is not the right framework for companies to evaluate investments. ROI is for the wall street folks. They will use it to decide if they want to invest in your company. But when you make investment decisions in your company, don't use the tools that wall street uses. Use the tools that animals use. Survival instincts. What will it take to ensure that your company is around in ten years, fifty years, 100 years? That's how to think if you want to stay in business.

One of the most difficult decisions entrepreneurs and executives have to make is the decision to disrupt their own business. Let's say you are a cable operator. You are making billions of dollars of profits each year providing voice, video, and data services protected by a monopoly business model. Along comes the Internet and it allows voice and video to be delivered to your customers via any IP network (wireline, cable, wireless, etc). You know that over time, this is going to disrupt your business. What do you do? Do you invest in this new technology and drive it into the market, hastening the decline of your monopoly protected business model or do you do everything you can to slow down the advance of this technology?

Sadly most executives make the latter choice. Most entrepreneurs make the former choice. The latter choice is about short term profit maximation but can, and often does, lead to the demise of the business in the long term. The latter choice is about survivability even though it will almost surely lead to a less profitable business in the future. Tough choice. But to me its an easy choice if your goal is long term survival.

One of the reasons entrepreneurs make these hard choices when executives don't is entrepreneurs think like owners. They have that survival instinct in their gut. They don't want their baby to die. Executives are hired guns. They are focused on maximing the success of the business (and their compensation) over a short period that they will in the corner office. They have no incentive to think about what happens in 20 years or 50 years. They know they won't be around. And so the company isn't around either.

So when you construct your business model and create the culture of your business, emphasize sustainability over profit maximization in everything you create and do. This does not mean that you don't need to make a profit. Profits are the essence of survivability. You can't and won't survive without profits. They are everything when it comes to sustainability. But just because you need to make a profit doesn't mean you need to maximize it. Balancing the need for a profit with the need to sustain the business is the art of what you must do as the leader of a business. Do both and you win.


Our project in this course is to create a sustainable business model canvas. If you are not familiar with the Business Model Canvas watch this video:

You will either have a business or you will invent a business and then you will map out your Business Model Canvas with the goal of sustainability as you go. You can do this by yourself or in teams. It doesn't matter at all. The goal is to do this project and learn by doing.

The thing I want you to focus on the most is the decisions you make as you fill out the canvas and which ones you were forced to compromise on some goal in order to maximize the sustainability of the business. Those are the magic decisions and the ones we want to document and discuss as we go through this course.

Good luck. Hopefully I will see you at 6pm eastern today in Google Hangouts.

#MBA Mondays

Comments (Archived):

  1. Carl Rahn Griffith

    Vinod Khosla ‏@vkhoslaEntrepreneurs response: “we’re great” or “we are facing some challenges” the latter answer is often the guy that builds a lasting business.

    1. fredwilson


      1. Carl Rahn Griffith

        I always remember a visit to SCO (showing my age there, lol – I used to do quite a lot of work with them at the time) – it was the end of year and the whole building was playing music, flat-out – the main song being played time after time was “the future’s so bright, I’ve got to wear shades” – and all staff (and visitors such as myself) were given exaggerated sunglasses to wear.Hmmm, I thought.Guess what happened next…?

        1. fredwilson

          they went out of business

        2. Techman

          If they were so glad to be in business, then I wonder why they go out of business? I guess you could say that I’m a young person.

          1. Carl Rahn Griffith

            SCO is a lesson all too quickly forgotten, Michael. The tech industry seems very adept at sweeping much of the (negative) past under the carpet, sadly.Thus, lessons we could learn from are hidden/forgotten and in an almost Stalin’esque way airbrushed from history, if they don’t suit the story…

        3. Henry Yates

          their wikipedia page needs updating:…Like this though: “In August 1994 SCO and Pizza Hut announced PizzaNet, “a pilot program that enables computer users, for the first time, to electronically order pizza delivery from their local Pizza Hut restaurant via the worldwide Internet.”

    2. William Mougayar

      Loved that. I tweeted it yesterday

  2. William Mougayar

    Wow. This is a powerful entry salvo into this topic. I love this ” Use the tools that animals use” and can totally relate to it. Btw- the original HP Way had Profits as #1 & Customers as #2. 

    1. fredwilson

      like i said, profits are a good thing. maximizing them at the expense of the important stuff is not.

      1. Techman

        Very good thought Fred. Major corporations have lost all thought, just working to maximize profits at the expense of more important stuff, like having a good reputation.

      2. William Mougayar

        I meant it as a complement to what you said. Yes, profits allow you to do a number of things. In HP’s hey days, they gave a part back as employee profit sharing and continued to fund first class R&D and manufacturing.

      3. Geoff Graber

        Why are profits important? I of course believe that revenues are important and making conscious decisions on spending is important. I also believe in “rainy day”, R&D, and investment funds as well as providing a dividend or other profit-share to employees and investors. However, I haven’t figured out the importance of profits–meaning, what’s left after all of these items.From this viewpoint, having large profits might be a sign of mismanagement and inefficiency. I know it would be a “good problem to have”, but to me it may still be a sign that management is not thinking as long-term and consciously (my preferred term) as they could.I’m really curious to hear your and others’ answers here on this topic.Thanks!

        1. fredwilson

          Without profits you eventually run out of cash and go out of business

    2. thinkdisruptive

      Customers should be #1, Sustainability #2, Profits #3. If you do it in that order, you will always have more of 1 and 3 in total.

      1. William Mougayar

        In truth, all are important, and as an executive, you never keep your eyes off any one of them. But profits and cash flow are the lifeblood of a company and indicative of its health. With poor health, you can’t take care of customers, let alone acquire them, unless you go into debt to finance your survival, but then that’s a risky path that only very few companies come out of in a better shape.

        1. thinkdisruptive

          We don’t disagree that all are important, but in my experience, any company that puts profits first, and believes that’s what they’re in business to do, always eventually falters. Putting customers first and sustainability second ensures there will always be profits, and more importantly, loyalty, which can pull you through dark times. You may occasionally have to sacrifice short term profits to do this, but the payoff is large in all areas, including your own sense of a bigger purpose and values. Apple never put profits first (after Steve returned in 1997, although at the time the company was failing, profits were the ceo’s top priority), for example, but ended up as one of the most profitable companies ever, with margins that would give most top execs wet dreams.We agree that in an established company, profits are an indicator, but they’re a trailing indicator, and negative profits are evidence that you weren’t looking after customers or sustainability. Focusing on profits as the way out of trouble only makes them harder to attain. It is a question of priority, not of importance, as you obviously can’t run a company that perpetually loses money.

          1. William Mougayar

            If a company like Apple is generating the amounts of profits they are, it was by having that objective in mind. It didn’t happen by just focusing on the customers. It happened because their financial model is designed with that type of profit margin, and they execute against it.

          2. thinkdisruptive

            Yes, of course Apple’s intent is to make a profit. The difference is, they don’t consider it the reason they exist. It isn’t their top priority.It remains to be seen whether Tim Cook will retain that mindset, or whether as a former CFO, he will shift the emphasis to profit as the primary. If it does become #1, expect Apple to become more ordinary, and less of an icon for good design, delightful products and world-beating innovation, and ultimately (and paradoxically) less profitable.I think we’re mostly saying the same thing, but the subtle difference may be in what an organization considers to be its core purpose. Profit can never be a core purpose.

          3. thinkdisruptive

            I just realized that when I said “the ceo’s top priority”, it wasn’t clear which CEO. I was referring to the conventional crew from Sculley to Amelio, who almost killed the patient by focusing on profits.

  3. William Mougayar

    Is Skillshare integrated with Google Hangouts?

    1. fredwilson

      i think so

  4. awaldstein

    I’ve been the ‘hired gun’ many times but I always considered myself to have some long-term heart and smarts.My one rule has always been to feel great about charging which means you place value and long-term customer connections first. From that everything falls into place.I’ve fought against management by ROI for my entire career. It’s still there like a vestigial organ that is always in the way.

    1. Carl Rahn Griffith

      Ditto. I’m amazed at the amount of pro bono work I am offered, and that some people still seem to think that this is normal practice. I have to say a polite but firm ‘No’ nowadays (apart from the mentoring work I do for local new entrepreneurs/startups, via our chamber of commerce).

    2. fredwilson

      fighting the good fight!

    3. Carl Rahn Griffith

      A business relationship needs to be seen as a TCO if there’s any sense of commitment.

  5. Techman

    Hey Fred, a little OT, but do you prefer Google or Skype for video conferencing? Just gathering stats 🙂

    1. fredwilson

      I don’t like how Hangouts is integrated into Google+So I use Skype mostlyBut I think Hangouts is a great product. They should decouple it from Google+

      1. kidmercury

        have you seen google+ events…..outstanding….they have google hangouts integration… fact i think you may find it interesting to create a google hangout event for your skillshare class….but then it will be a war between skillshare and google+ as to which platform you are really on. wait till they start allowing publishers to sell tickets to online events……

  6. jason wright

    Yvon Chouinard, owner of Patagonia, gave a talk at Harvard last week. In it he emphasized that being the sole owner of his business gives him the freedom to decide priorities, and that publicly owned companies are not sustainable (although he intensely dislikes the word ‘sustainable’).

    1. fredwilson

      Did he say what he doesn’t like about the word? I think it captures the idea of surviving and thriving very well

      1. jason wright

        He said he “hates” that word. He prefers the word “responsible”.…16:00 – 16:10, but that clip needs bracketing to get the context.And from 33:00 is about public verses private (Patagonia is a B corp) and the pressures of seeking max profit.From 47:00 highlights initiatives to reinvent business accounting for sustainability;

        1. fredwilson


      2. James Ferguson @kWIQly

        I have a problem with the word – purely because we work in the environmental field – it has been misappropriated and is misused.To sustain implies endurance – I prefer success (regardless of measure)

        1. fredwilson

          Aha. I didn’t think about the environmental sector. I can see why now.

          1. William Mougayar

            Generally now, the term Sustainability is used to depict Business Sustainability or Corporate Sustainability in the context of green/environmental/clean energy related initiatives and commitments, to James’ point….I realize you’re talking about competitive sustainability and enduring business operations models. Maybe during the class, it’s worth making that distinction upfront.

    2. jason wright

      Sorry, Yale, not Harvard.…I’m going to watch it again later. I’ll summarize what he said about that word.

      1. ShanaC

        thank you

  7. LIAD

    This recently published free Steve Blank course on Udacity is an incredible detailed walkthrough of The Business Model Canvas.I think it’s probably the single best all-encompassing startup course out there. A great foundation to what Fred will be teaching us in the coming weeks

    1. fredwilson

      Awesome link LIAD. I love how this community incrementally improves the content here at AVC

      1. JLM

        .Your monster..

    2. Carl Rahn Griffith

      Cool – thanks!

    3. RichardF

      thanks Liad

    4. James Ferguson @kWIQly

      Thanks LIAD – just been watching – very useful

    5. ShanaC

      thank you!

    6. Korf

      Cant agree enough, Steve’s class is fantastic. Steve ate his own dogfood and canceled the class he had initially proposed because it didnt have the right problem/solution fit. Highly recommend. Also recommended is @ashmaurya ‘s – His set of startup tools might be a great supplement to this series:

    7. panterosa,

      Started the videos. I also love when there is drawing at the same time.

    8. Donna Brewington White

      Amazing! Had to tear myself away to go to the next thing (will return later), but wanted to thank you first. So, thanks, Liad.

    9. Sam Parker

      Yes, great link. I’ve been looking for a simpler way to introduce teams I work with to the customer development practices we already use implicitly and this does an excellent job of literally illustrating the concepts.

  8. awaldstein

    I’ve been asked many times whether managing for an exit and managing for long term growth were different strategies.I always felt they were the same if you were going to attract the right buyer.

    1. fredwilson


    2. Carl Rahn Griffith

      Sadly, all too often the primary goal has simply been ‘Exit’. Everything else is just a means to an end.Not good.

      1. awaldstein

        I’ve had this discussion oh so many times especially with early stage companies that have found momentum.My answer has always been..there is absolutely nothing I would do different the next day in the office for either goal. Building value has always been the only thing worth chasing. And it pays when you get it.

    3. Nick Ambrose

      Indeed. That’s been my thought. People talk about “exit plans/strategies” far more than about their product/company sometimes.My feeling has always been, build a profitable and sustainable business and you will have your choice of how you proceed with it, be that selling it, going public or whatever.If you build a business based on promises of millions for everyone, then I think that ends up detracting from everything else. Sadly, it seems it “works” quite often as you see a bunch of companies divesting themselves of terrible investments they made ….

  9. James Ferguson @kWIQly

    Great Hope to be there…Meanwhile Fred …Is there any difference between your post and the concept of decision making based on Net Present Value ?

    1. fredwilson

      Not if NPV is calculated using a very long model. But forecasting the future is super hard. I prefer gut instinct to spreadsheets when it comes to this stuff

      1. Cam MacRae

        A mistake I see pretty much all the time is to omit the momentum strategy from your alternatives. Your VP Product’s $5m proposal looks pretty good against a momentum strategy that bottoms out in 4 years.

      2. James Ferguson @kWIQly

        Yup – BUT ! While “scratch your own itch” talks to this.Even if you “know” the world you are in it is easy to make mistakes on forecasts.Example – we just realised that our technology underlies a far bigger client “ticketing” issue. We had overlooked this as consultants (because we had never previously looked at scale – where we knocked problems down one at a time – clients do it in parallel) – yes we had designed to scale internally – but overlooked work-flow issues that our clients face (it had not been our problem).This is leading us to a substantive change in our model -Another two months refining should make the eventual win more sustainable (we serve a need this way – “not being overwhelmed” while still solving a problem ).The rolling decision “not to gear up” is surely one of the biggest we’ve faced – deferring increased burn rate to decrease customer risk -Football freekick – Standing with hands in front of you expecting a ball tothe nuts 🙂

      3. ShanaC

        How long can you extend out NPV?

        1. fredwilson

          As far as you want

  10. geekofhearts

    I wrote something similar to this a while ago:…but it’s nice to hear someone who knows what they’re talking about agreeing 🙂

    1. fredwilson

      I suspect you know what you are talking about too. I will give it a read

  11. Tom Labus

    Jeff Bezos should be the poster boy for this concept.He never takes his eyes off the horizon and always follows through on that long term vision. This is done even with a constant pounding from analysts.Unfortunately, that trait will get you fired in most public cos.

    1. awaldstein

      I”m a big fan.But my personal experience with a handful of public companies I’ve been involved with is that you get pounded by analysts regardless. It’s a tough job speaking to the public markets.

      1. Tom Labus

        No question.The market is so fickle and can turn on you in a flash.

        1. awaldstein

          You can be ‘friends’ with your seed and VC investors and that friendship and guidance really helps. No such thing with the public.

    2. fredwilson

      He’s an owner

      1. Jeff T.

        And this is the root of some of the issues regarding public companies. The majority are not run by an owner, or if they are, not by an owner with a large enough stake to allow them control over short-term decisions which will be better in the long-term vs short-term.I think this begs the discussion of incentive structures for CEO’s at public companies. How can they be tied to the long-term results of the company, how can you easily measure this in variable markets, how can you shift investors/wall streets expectations to account for this without slamming the company, and is any of this even possible? I think it will take many more companies to go public and keep people like Jeff Bezos at the helm to shift any of these viewpoints, if it is even possible at all.Prior to my entrepreneurial life I was a mgmt consultant handling many strategy projects for F100 companies. The vast majority of our projects had immediate short term implications, but not necessarily aligned long term outcomes. E.g. shut down a plant now for a 2-4 cost benefit, but 4yrs down the road they would need to reinvest in a completely new plant to handle expected customer growth. These decisions were driven purely on “I need to continue growing EPS now”. It forms a culture of continual short term trade-offs for minute gains, but in the end continually makes the business more and more fragile.

    3. ShanaC

      unless you start it.Why did public co move away from sustainability?

      1. Tom Labus

        Emphasis on Q results.

        1. ShanaC

          when did that happen though in history?

          1. Tom Labus

            I think it was gradual as long term horizons were dimmed and there was more trading than investing. Sometime in the late 90’s is my best guess.

          2. ShanaC

            I feel like it might be earlier – maybe the 80s with the growth of the LBO

          3. Tom Labus

            Yeah, it probably was the 80’s.In the 80’s, when Goldman was a partnership they turned down hostile take over work (not 100% but mostly).because they felt it was “bad” for customers.It’s a long and very twisted road to get to them doing CDO’s designed to implode in customers hands just so they could make a trade.

          4. thinkdisruptive

            It began happening as soon as public company ownership began to be more widely distributed and the excesses of the “robber barons”, who treated their creations as personal piggy banks, led to calls for more independent oversight with boards looking out for the interests of all shareholders (their fiduciary responsibility). Public companies have been accused of only looking out for the short term since at least the 1880s. It has accelerated since WW2 with the “professionalization” of management via MBAs. It may be Harvard’s greatest legacy on corporate thinking.

          5. ShanaC

            i wonder what harvard thinks of that

          6. thinkdisruptive

            I suspect that some of them are aware of it and trying to change. The majority of the grads aren’t, and continue to act consistent with short-term profit maximization and CYA management goals.Until very recently, no one really realized that this kind of thinking was not the best way to run a business, so it’s hard to blame them for history (even though I did, kind of). But looking forward, MBA programs should certainly be blamed for continuing to do more of the same.Ironically, before an MBA was a requirement for even low-level management jobs, we had more mavericks and original thinkers in the mix, so in the 60s and 70s it was less of a problem. Operational efficiency isn’t all bad — it’s necessary for existing systems and products to remain competitive. But it’s bad when it’s the only thing companies do, and it pushes out creativity and disruptive innovation capability.

      2. thinkdisruptive

        Because they were driven towards the assumed greater certainty of profits versus the uncertainty of success in future investments. The mentality is driven by external investors who by and large have less knowledge of the market, what’s possible, probability of success, but understand that if you cut costs, you’ll usually have more profit to go around this quarter. It happens as soon as the visionary founders who have the moral authority to lead and innovate step aside in favor of professional managers, and it doesn’t matter how big a share they have as long as it’s substantial.For example, Bill Gates had a firm hand on Microsoft’s controls despite holding only about 10% (now about 7%). And Steve Jobs held only 5.5M shares of Apple (0.6%) — ironically he had a 10x larger share in Disney at 7.4%, which is where the bulk of his personal wealth was — yet, near absolute control.Most public boards view their fiduciary responsibility to be solely profit maximization. That’s the reason they turn away from disruptive innovation — it’s high risk, not easily operationalized, requires experimentation with unpredictable outcomes targeting smallish markets, etc. — yet, it’s disruptive innovation that secures the future. That, and treating customers right. If governance was judged based on a combination of profitability and “securing the future” (sustainability), we’d have a far healthier public company landscape.

  12. pointsnfigures

    Netflix vs Blockbuster. Classic case of not choosing sustainability. One place where the thesis might not hold is in heavily regulated industries with high start up costs. The barriers to entry are so high the business stagnates. I am thinking of financial exchanges.

    1. fredwilson


    2. JJC

      One could say Netflix is at a similar inflection point today. Their core business (streaming content) is under attack from multiple angles, yet Netflix has yet to react (other than to propose a hail mary plan to copy HBO). I love Netflix, but I’m concerned they’re falling victim to the same dynamics they imposed on competitors in the past.

      1. pointsnfigures

        I wouldn’t disagree with that. You would think when a stock price takes a massive dive, the executives might wake up. Not always the case. Here is one of a financial exchange. If there was true competition, they’d be on the ropes.

    3. Matt A. Myers

      Blockbuster not using their brand and adopting a Netflix model, even to just be competition, was so obvious and somewhat sad to see. They could have leverage their physical stores in a unique way too (at least initially), an asset and reach that Netflix didn’t have.

      1. pointsnfigures

        Here is what Prof Raj Echambaldi of Ill says, “ask yourself a simple question. What did the customer hire you to do? Answer that and you will be closer to your customer and you will create a product for them-not creating a product for you.Companies fall in love with their own technology. This is called the “endowment effect”. They forget their customer. It happens more often than you realize. Even when companies say they are intensely customer focused, they really are trying to dictate to their customer in the marketplace.Blockbuster was in love with themselves. They had a bowl game for cripe sakes! Raj also said that Blockbuster had 30% of the market-yet thought they had 100%. Netflix defined a new market. Streaming redefines it yet again. It’s tough to think different when you are on top.

  13. SDB

    Looking forward to the class. I have been using Business Model Canvas for curating and productizing new product ideas within medium size business (a public company.) I chose this method to establish more innovative environment and to bring nimbleness to our product development process. Short Term Profit Maximization vs. Long Term Business Health is an every day conversation. One can guess what wins 95% of the time. Thanks to Business Model Canvas that number is not 100%.

    1. fredwilson

      I love it. This means we are making progress

  14. Matthew Collins

    getting a 403 error on the skillshare “enroll” button — excited about this course, though!

  15. Seenator

    The interesting thing is that a majority of the value in most companies (ESP growth companies) are in the terminal value if you use a DCF method.If the terminal value calculations had more science behind it instead of the simplistic cash flow/wacc- then managers would think about it carefully.Most businesses have a decay factor so the investments in sustainability help reduce the decay factor. So a terminal value formula such as cash flow/(wacc+decay-sustainability factor) could introduce the right thinking in managers

    1. fredwilson

      yes. if you can model out the out years correctly, the financial models can work. but so many companies use them incorrectly

  16. Patrick Dugan

    That VP of Product is not very lean, 5mm over 2 years to deliver a set of mobile apps for ecommerce? I think it could be done with 250k over 6 months for a multi-platform native launch and then you optimize the apps over the next 2 or 3 quarters.

    1. Matt Hardwick

      I think you’ve missed the point…

    2. fredwilson

      I know. I needed an example that would resonate but I was cringing when I wrote it for that exact reason

  17. Scott Barnett

    Awesome post – the survival instincts captures one of the two main reasons large companies can fail to innovate. The other is fear of the unknown – simply sticking with what you know works vs. trying something that “might” fail. I think large company execs use survival instincts too – but only when it’s too late and their backs are against the wall. When you have two diverging roads and you don’t know what is at the end of one of them (going the new route) but know what is at the end of the other (keeping the same course), a ton of people (even entrepreneurs!) will take the known path.I wish I could join the Skillshare session tonight – I am in Germany today and will be long sleeping by 6pm EDT 🙂

  18. Darren Herman

    I absolutely love this quote: But when you make investment decisions in your company, don’t use the tools that wall street uses. Use the tools that animals use. Survival instincts.So true. (and btw, I wrote code in this response, FTW)

    1. fredwilson


    2. Brennan Peterson

      Maybe. IT really is important to have a method for picking between different projects to invest in. ROI is ultimately a way to structure thinking about what to do–the numbers are quite amenable to all sorts of cheating. What discount rates, what assertions about profit, what is the baseline scenario….that exercise is really worth the thought.Don’t confuse the tool with the thought behind it. IF your company uses ROI, that is great, just make sure a thoughtful debate goes into it. For simple capital purchases, ROI is a good tool to structure useful thinking about what makes a company. It doesn’t always work, but it at least forces some thought beyond ‘I like this’.Survival instinct…well, survival instinct is usually fast reaction to finding food today. Crop rotation isn’t a survival instinct, but most assuredly matters. Minimizing total kills to keep a sustainable huntable population isn’t an instinct, and population stability is guaranteed by starvation, not intelligence. Lets try to do better.

  19. Russell

    Interested in the talk about SCO – always good to learn from the mistakes of others. On a different note I found out why @fakegrimlock hasn’t been around. He has been lasering students at HBS –, needs no introduction IT AWESOME!

    1. William Mougayar

      Yup. I wouldn’t be surprised if they gave him tenure this year. That was a great video. Great for watching after your kids cartoons.

  20. Seth Lieberman

    This is one of my favorite stories in the past year… about a South Korean business man who bought 200 caviar sturgeon from Russia in 1997 and has now spent $13M to increase that number to 50,000. The mind blowing part of the story (among all the cool parts) is is *literally* has started a company that will outlive him (sturgeon can live to 150). Now THAT is long term planning.

    1. fredwilson

      Sturgeon are sustainable it seems

      1. ShanaC

        and delicious

        1. laurie kalmanson

          nom nom nom

    2. laurie kalmanson

      the other forbidden export: live pairs of sable. (the fur bearing mammal, not the smoked fish)

  21. jason wright

    Speaking of sustainability, Eric Hobsbawm died today;…Watch his interview with Jeremy Paxman for his views on the modern epoch of capitalism.

  22. laurie kalmanson

    #becauseawesomerelated: treating your customers like they will always be your customers, when they have other options < > restricting content access arbitrarily based on global copyright and licensing that mean something to people with spreadsheets but are black holes for userscase in point: downton abbey is on now, season 3, in the uk, and is being held for the us until next year — they could make money here now by charging for it, or they could annoy the fans who don’t see the point of waiting and will shift attention elsewhere.the most devoted fans are (a) the most likely to pay now and (b) if payment isn’t available, they are the ones who will learn fun facts such that a global proxy extension for firefox, called “stealthy,” is only a click away and lets users watch live, in realtime as the show is broadcast in the uk, and see the taped version online at their convenience.this could also work for basketball

    1. ShanaC

      This could work for a lot of content bases businesses.But disruptive. Because it means admitting content gets stale to certain people and not others.

      1. laurie kalmanson

        “news to me”

  23. takingpitches

    I think there are certain industries where the innovation has to come from outside — cable and telecommunications are among them.The monthly bills are too large that bounding innovation so you give customers enough without disrupting high ARPUs is unfortunately the right strategy in their eyes, as fully embracing the new technology, which would bring in more competitors than the current market structure and depress ARPUs.The thing that moves the needles for these guys is price increases or pricing innovations that are really just — at the end of the day — hidden price increases. See what the wireless companies have been doing with stepping away from all you can eat mobile plans and converting all their wireless plans to bucket plans.The nice thing from an entrepreneur’s perspective is that these are the industries where you can really succeed. There are proven revenues, unsatisfied customers, and what does not move the needle for the massive MSOs and Telcos in terms of revenues can build an impressive startup for an entrepreneur, see Skype, Netflix, Hulu etc.Pebbles to a big company can be gold to an entrepreneur.

  24. andyidsinga

    Enjoyed this post – especially the part about feeling / acting like an owner vs a hired gun.Speaking about Clayton Christensen – here is one of my fav posts with his views on pursuit of profits that cause a business to focus on smaller and smaller wins:

    1. fredwilson

      that’s a great one

  25. brian trautschold

    hired gun vs owner is a huge (complicated) concept and core business value. Once people see themselves as owners – from bottom to top – really special things can happen. still working on it but it is very valuable to our company

  26. ShanaC

    Is there any business that is fully sustainable that also is big? I mean the oldest companies (… ) tend not to be massive conglomerates. They tend to to be boutique with a lot of tradition (and apparently a lot exist in Japan….)

    1. ShanaC

      Also, worth reading, how Kongo fell apart –…(kongo was the world’s oldest company up until 2006. They existed for about 1,400 years, building primarily buddhist temples. Technically you can still hire them: They are a wholly owned subsidiary of a different japanese construction firm.

    2. fredwilson

      IBM has lasted a long time and seems to be doing very well

  27. WayneMulligan

    Fred, I couldn’t agree more, but I do wonder if saying ROI is for the “Wall Street” guys might not be the best way to classify it. I mean, ROI is a tool, it’s actually a very good tool, that one could use to make business decisions.Where it gets difficult to use (and where we separate the good managers from the bad) are on the inputs.If you’re quantifying “Return” based on too short a time period then you’re right, you might not make that mobile investment. You might try to protect your cable monopoly. So if your input on the Return side is off then you’ll obviously make the wrong decision.But that doesn’t mean the framework in and of itself is flawed, the tool is only as good as the guy who’s using it.

    1. fredwilson

      i agree but i wanted to throw a lot of cold water on ROI because i don’t think most businesses use it correctly and a badly used tool is worse than no tool at all

  28. conorop

    this is not quite apples to apples, but I think it is close.I recently joined a young alumni fundraising committee for my college’s 5 year reunion. despite being a top 30 school and an extremely happy, proud student body, we have a notoriously low alumni giving percentage, around 25%, and don’t hear the end of it from the development arm of the school.I contribute it specifically to this notion of ROI – the school is too interested in making the short-term $ that it kills their long-term investment from alums. Eventhough tuition is now close to $50k, students and parents are nickel and dimed for every event, tshirt, and get together. Rather than feeling taken care of and given endless opportunities for fun and success, students feel they “made” their own experience.In my mind, a couple tweaks to create four amazing years may equate to a hit in the short-term but payoff huge for the future.

  29. Donna Brewington White

    “One of the most difficult decisions entrepreneurs and executives have to make is the decision to disrupt their own business.”Wow, Fred, so many choice quotes in this post. More than quotes — challenges to consider.What jumped out at me in reading this particular thought is that disrupting your business probably means disrupting yourself. I wonder if this is part of the challenge.

  30. Denim

    I love this line: “Use the tools that animals use. Survival instincts.” Having a toddler reinforces this as they explore and discover and learn from doing. You must color outside of the lines. This is why I love entrepreneurs, they are the closest we have to Christopher Columbus.Having a baby in this connected and digital age, as well as experiencing death, forced us to design our product with sustainability at its core. We are attempting to offer sustainability and continuity to our users and their memories. Memories evoke emotion and are uniquely personal and private and time dependent. Memories are tech agnostic, over time, and although tech evolves to capture and manage memories more efficiently as we move forward through time, it is the memories themselves that are important and cannot be replaced. My grandmother has 95% of her life’s memories in analogue form or in her memory. My life is 1/2 analogue and growing digitally every day. My daughter is born digital and won’t have a memory from age 0-5ish. We are at an inflection point with enormous opportunities. Time and sustainability seem to have been afterthoughts in the development of products on the web to-date. Time is something that consumes my thoughts and I hope we have translated this obsession into the design of our product to last regardless of who you are, when you lived, when you will die and what will be left behind. We will always capture our memories and these memories collectively tell the little stories and a larger story of who we are. To me, this is the real opportunity and power of the web moving forward.

    1. fredwilson

      what is your product/service?

      1. Guest

        test – 3rd attempt at a reply

      2. Denim

        the product is called (mi = my internet, which is the company name). I have mentioned it on avc before but try to avoid looking like I am using this forum as my own personal marketing channel. I come to avc to learn and I am very passionate about internet product sustainability and continuity, time, digital death (and birth), user privacy, control & monetization of their data, and how these relate to families and cross generations in the internet era. I typically comment when you write about these subjects but don’t want to be self promotional. We are focused on archiving memories for our users over the long term (life, and beyond with our eBeneficiary) and are in public beta and playing the long game with the user at the center of their data and internet experience. Thank you for taking on sustainability and putting it front and center on MBA Mondays. Its a big deal. I signed up for the Skillshare course but it is difficult for me to make the evenings work as I am spending Q-time with my daughter. I am excited to dive in and follow along!

  31. William Mougayar

    Couple of points on the Business Canvas from experience and having done something similar we used to call 10-step plan to Competitive Sustainability.I asked this question on Skillshare, but here it is -At which point in time in the lifecycle of astartup does it make sense to really nail down the business canvas areas? Myhunch is if it’s done too early it’s not as meaningful because you’re still trying to find these sustainable elements at the beginning. At least, it will be hard to fill it out in a credible manner because many of the assumptions won’t be fully tested yet.Second point is that once you nail that business canvas, keep it as a pretty confidential document, because it will reveal your inner game plan thoughts and tactics.

    1. awaldstein

      First point is key.Startups are not businesses by definition. Certainly you need to manage to cash flow, raise capital, build a product and brand, be conscious of culture and wealth distribution.But till you discover customer value and a model around it, the question of sustainability on a larger scale is really moot and academic.

      1. William Mougayar

        Exactly…The canvas is an incomplete works-in-progress certainly initially.

    2. fredwilson

      the answer i gave in office hours is you should start your canvas right away but come back to it every six months and modify it based on what you’ve learned

      1. William Mougayar

        I’ve come back to agree with you on it. One of the benefits of the exercise is that it makes you think very hard about what you are doing, and that’s a good thing.

  32. Mason Myers

    To enable a company to make the sustainable decisions that Fred outlines, alignment with your investors is critical. If there is a mismatch between the time horizon among the company and its investors, I have seen it create big problems for the company. Neither perspective (short-term or long-term) is inherently more correct in my opinion, but making sure that you are in alignment with your investors allows the company to make strategic decisions one way or the other. This reminds me of Fred’s post on April 11 about “Possibly the most interesting conversation I have been having with entrepreneurs lately is how they can keep their companies independent without . . . . turning their cap table into a casino”.I set-up my small investment fund (Greybull Stewardship) with a perpetual fund life to enable me to make investments for the long-term when that is what the company management and other owners want to do. There is nothing worse than a company wanting to pursue a long-term strategy but the investors’ fund constraints force a different path. And, there is nothing better than when all involved can be aligned on time horizon. (

    1. fredwilson

      great point

  33. Nick Ambrose

    Awesome post! This sums up how I would hope to run my own company, and sadly not how I have seen a single company I have worked for actually be run so far.My experiences so far have all either ended up as- “We have to make the quarter so we need to to XY/Z”- Support is costing us a lot of money, and the CFO wants to stop that, let’s try to make it a “profit center” by charging people for support (rather than investigating why we had so many support calls/issues/costs — yeah, lets get people to pay us to fix our bugs …surprisingly and sadly it mostly worked”- New customers are way more important than “old” (aka existing/loyal) so we wont fix the old stuff, lets just add new products/features- “You guys in the US are really expensive” lets do it for 1/8 the cost in India/Romania … by the way, some of you are now “managers” of a team multiple time zones away that you never have met, and the rest basically get to train your replacements. Good luck if you are a great engineer but a sucky managaer, it’s just “too expensive” to keep you – “This company has never lost money over any single quarter and we are not about to start now”etc. etc. etc.

  34. takingpitches

    Going public seems to be a second creation moment for a company, where the core identity is set.Yesterday, you discussed that an investor has to have conviction, and without it, it’s too draining for the entrepreneur and the company.It seems that the public markets — probable more than ever — don’t have the type of conviction to support the same type of long-term sustainable vision that a great entrepreneur backed by great investors can. It’s too draining for a great entrepreneur or leader to back a sustainable vision against the analysts and public stockholders.I’m curious whether you think that’s true, and whether there are exceptions recently, other than those such as Apple and Amazon with Jobs and Bezos that were founder-controlled.

    1. fredwilson

      it’s really hard to be a long term investor in the current public markets

  35. kirklove

    This is very cool and I’m excited to participate and follow along. Thank you for taking the time to do this.I suppose this means we’ll have to add another P for Professor, along with Punk and Pimp.

    1. John Revay


    2. fredwilson

      joanne got me a t-shirt recently that says HTTPSTER

      1. William Mougayar

        Speaking of t-shirts, I was at a bakery the other day, and the guy at the counter’s t-shirt said “Just dough it” 🙂

      2. kirklove

        Let’s just hope it doesn’t have a 404 Not Found message on the back 😉

        1. fredwilson

          Excellent idea!

      3. ShanaC

        Do you know where she got the shirt?

        1. fredwilson

          online somewherei just googled the phrase and found this…

  36. Matt Mireles

    @fred: There is now a Business Model Canvas generator iPad app:http://www.businessmodelgen…I gladly paid $30 for it. Well worth the money, especially as an entrepreneur starting a new venture AND wishing I did something like this for my last one.

    1. fredwilson

      that’s great. i will mention it in my next MBA Mondays post. thanks.

  37. LE

    One of the most difficult decisions entrepreneurs and executives have to make is the decision to disrupt their own business. Let’s say you are a cable operator. You are making billions of dollars of profits each year providing voice, video, and data services protected by a monopoly business model. Along comes the Internet and it allows voice and video to be delivered to your customers via any IP network (wireline, cable, wireless, etc). You know that over time, this is going to disrupt your business. What do you do? Do you invest in this new technology and drive it into the market, hastening the decline of your monopoly protected business model or do you do everything you can to slow down the advance of this technology? Sadly most executives make the latter choice. Most entrepreneurs make the former choice. The latter choice is about short term profit maximation but can, and often does, lead to the demise of the business in the long term. The latter choice is about survivability even though it will almost surely lead to a less profitable business in the future. Tough choice. But to me its an easy choice if your goal is long term survival.Let me start by saying that yes it is true that many people running businesses suck, are lame, make the wrong choices, and miss obvious cues of changes they should make in order to maximize profit in the short term.But I don’t believe for a second that many decisions that in retrospect look crystal clear are that obvious or don’t involved tremendous risk to the company that actually has to lay out the dollars.Because while you can make predictions you can’t always accurately predict the actions and behaviors of others that are involved in what needs to happen for everything to work according to your plan.Take broadband for example. Verizon had to spend billions of dollars in order to put Fios in which gave people who may not have had access to even DSL (or cable) high speed access to the Internet. The fact that Verizon spent those billions (jackhamering sidewalks to lay fiber) (for some other company which would depend on ubiquitious high speed internet for their product or service to take off) was not guaranteed. Many things had to fall in place.In retrospect, when written about in business magazines and papers, things look fairly obvious. But if they were so absolute, risk free, and obvious companies would not make the decisions they do (not withstanding the fact that as I said people suck and are lame and make the wrong decisions).Everyone bases what they do on the way they see the world and the risk they are willing to take. I bought domain names back in the 90’s but I never ever expected them to be worth what they are although I knew I would be able to sell them for something. Had I known what I know now obviously I would have done much more with this. (In addition to buying real estate in Manhattan which in retrospect seems obvious as a good invest.)Let’s take incubators (like YC, techstars etc.) Let’s say you have a hunch that they might give you less deal flow or actually angel deal flow. Are you willing to invest in putting up your own incubator? Although this is a hypothetical, my point is merely that you will consider that “threat” and make a decision on whether you want to hedge or not against that. Years later if deal flow slows considerably you could look back and say “wow I really missed that one”.

    1. fredwilson

      let’s say that we think YC or techstars will disrupt our business. what do we do? create our own version it? invest in one of them?

      1. LE

        “will disrupt”Short answer: Definitely create your own, assuming “will” means high probability.What choice you make below is based on what probability you assign to the threat and how you perceive that it will disrupt what you do today. And whether that disruption will be an issue. Which it is. You like what you do, it’s not all about money, and you want to remain relevant. You need to identity and establish relationships with people with potential. It seems clear that running an incubator is a great way to do that.(Of course if you only want to hedge a little, then you invest because it takes the least amount of time on your part. Because this is not a money issue it’s a time issue. But then you don’t get anywhere near the advantages of starting your own.)If you assign a high probability to it disrupting, then you start your own. Keeping in mind that the time you spend on that (vs. a passive investment) will detract from what you are doing today that is working for you. (Your schedule is already packed so something will have to give.)The people who are the upstarts (YC and TS etc.) didn’t have to worry about cannibalizing an existing business or importantly time they spent on something else. So for them it’s a much easier decision. And they blazed the trail. Now people are headed in the direction that trail takes them. You need to go there also.Very possible of course (and the point of your post) that if USV does this it will encourage others to do it as well (more than they would if USV didn’t do it.) So sure you will speed up the process.

        1. fredwilson

          when brad and i started USV we said that we had no intention of it surviving usso we did not have sustainability in mind when we created USVwe simply created the firm that we wanted to work forif we change USV, i don’t want to work for it anymore

  38. Youssef Rahoui

    Great post thanks!

  39. panterosa,

    @fredwilson:disqus What do you consider the best way to teach increasingly younger more ADD types about long range vision and planning?

    1. fredwilson

      i think there is no correlation between ADD and a lack of long term vision and planning. their problem is being able to focus.

      1. panterosa,

        I agree, but will add focusing on future can be compromised. Their cycles and speeds aren’t so compatible with long term vision.

  40. John Revay

    I was not able to attend office hours last night ( 6:00 PM) – I watched the replay on YouTube. three observations. 1. Camera angle – looked odd w/ the camera being mounted high up in the USV conference room – looking down the table – with you sitting in the corner. You may want think about using a different camera…..not a big deal – just felt a little odd. 2. Format – I know your time is limited ……thought on format – it would be great if you could do; A. The MBA Monday AVC post B. After the post (same day as post), do a 30 minute lecture ( hang out)on the week’s subject C. Hold office hours?As I type this – maybe office hrs could be combined w/ lecture3. Office Hours – Talking head – I think if you had a Slide behind you it would be better – I know you do a fair amount of public’s a given.If the Office Hrs – had a white board w/ some bullets written on it and you talked from them – it might feel better..

    1. fredwilson

      it is more or less a work in progress. i had never done this format before and was learning the ropes. next week will be better. thanks for the feedback.

      1. John Revay

        You are off to a GREAT start.2,000+ people applied to class100+ people on the live – office hours.Good luck & thank you for continuing to build out the MBA series.

        1. panterosa,

          Ugh, I wish I could sign up. Have to build an app in 6 weeks, and can’t let my eyes stray to anything. Hopefully I can catch the next one, or follow this one after the fact. Will that be possible?

  41. christopherskinner

    Fred, I am amazed one VC is thinking this way. How rare. The client side wants this but designing for 50 years? I am a great fan of balancing customer equity with sustainable profits and invented software to do just that.

  42. LE

    I wonder if there is any correlation between people who have a tendency to gamble (casino, sports) which seems to contradict a long term approach to things (wanting a quick hit of excitement and knowing whether you bet right).Gambling is essentially quick excitement and returns. On the other hand business is about taking gambles but they play out over longer periods of time.My observation is that many appearing-ly successful businessmen that have made that success quickly also enjoy gambling. But since we don’t know about the ones that gambled on something and failed, we can’t really determine if they merely placed it all on a long shot and won big. And I can also point to many business people that are not gamblers who have done well, most importantly, in low tech traditional businesses. In fact the lack of a tendency to gamble might actually hold them back. The same way being to honest in business will hold you back. (I have no doubt at all about that one.)Real estate is filled with people who have taken big gambles and failed. And real estate project development usually rolls out over many many years (through different economic cycles).You can probably pull up evidence to support either point of view. But my gut tells me that people who gamble would be less inclined to go for long term vision.

    1. panterosa,

      @domainregistry:disqus What I know of gamblers is they like having skin in the game. Some games are short, and more adrenaline inducing. Others are longer and require more skin. There are many kinds of gambling

      1. LE

        “is they like having skin in the game”Interesting. Explains why people behave differently when selling something they own vs. acting as an agent for someone else. It’s not only the potential to make a big hit but also the fact that you can also lose big.

  43. Danny Khatib

    You certainly have a knack for provoking interesting discussion.It feels to me like there are two separate points in here, that are in fact worth separating.One is around the lens of making corporate investment decisions, both in timeline and in perspective. I don’t read the iPhone example as a contradiction to the philosophy of profit maximization. Most schools do in fact theoretically suggest a focus on long-term profit maximization, not short term, so there isn’t really controversy there. The fundamental disconnect is around using strategy vs. finance to make decisions, and the iPhone example is a very valid argument for why using strategy (aka vision, survival instinct, gut, whatever soft word you want to use, etc) rather than financial modeling makes the most sense. Because anyone who has spent real time building or studying a financial model knows that a model can say anything you want it to, and it always dramatically underestimates the uncertainty of any plan. It also ignores a team’s ability to adapt. That’s why ROI as a primary decision making framework is flawed. In the end, many people use ROI as a forecast when it should really be used as a goal (one of many).The other point seems to focus on the central meaning of a company, in particular:(A) Should companies focus on shareholder value or stakeholder value, and(B) Should companies strive to grow or strive to sustain.A is the million dollar question indeed. Probably safe to say that many people on this thread want to live in a world where companies focus on creating value for all stakeholders (double bottom line, triple bottom line, etc). We want to serve the ecosystem, not the greenback. The trick is how to codify that in law by revisiting fiduciary duty. As to be expected, many great founders (and investors!) are impatient and typically take matters into their own hands, and so we now have an emerging crop of founders/employees who proudly claim their focus is on more than profits, and investors who proudly support that broader focus. No doubt these trailblazers will acquire the wisdom through experience needed to intelligently propose methods for stacking the legal cards in society’s favor by holding companies to a higher duty than profit, without undue burden. Then hopefully the next generation of companies won’t need to ask this question.B is a super interesting question all on its own, because many great companies have buckled under the pressure of growth, when they could have been quite valuable for quite some time had they focused on “sustaining” themselves. But it does seem a little counter-intuitive to strive for sustainability as its own ideal, somehow less ambitious, so I might be missing the point.Sorry for the long comment, I’m out of practice!

    1. fredwilson

      its a great comment. look at the B Corp model for possibly codifying the stakeholder approach.

    2. Geoff Graber

      The Benefit Corp. model/charter is also an interesting possibility for this. Patagonia has adopted it, I am pretty sure.

  44. Doug Gibbs

    ROI does not tell the whole story. Let’s invent Loss Without Investment. LWI would measure the loss if no action is taken. Yes, it probably can only be accurately calculated by Harvard MBA’s riding on Unicorns. Still, I like the concept. Plus LWI can be abused to get crazy projects going and sustain hundreds of business school grad students and HBR articles on ways to calculate, historical examples, with graphs and charts, and so on. We could probably base a whole new bubble on just the concept.It could solve the nations unemployment problems. Long live LWI!(Does such a thing already exist? I have never encountered it.)

  45. Jose Paul Martin

    Fred, I think this post speaks volumes about your thoughts about being a VC. Correct me if I’m wrong… as a fellow VC/PE guy… we’re financial investors not strategic investors. We’re in it for a period of time, generally 5 years on average, 7 years max. But the horizon for sustainable business is what… 10 years+? There’s definitely a gap.Since, I’m on the PE side, I honestly look out for businesses that are trying to be sustainable. Their management think differently, more long term. That reflects on some of the decisions they make. You hit it on when you note that what might be considered an investment for sustainable business is an expense for those trying to seek quick growth and exits.

    1. fredwilson

      even if we eventually liquidate our position, i think everyone does better if the company focuses on the long run

  46. fredwilson

    Great model Charlie. I love it.

  47. William Mougayar

    Good one. thanks.

  48. John Revay

    “-And don’t screw your neighbor by neglecting your impact on them, or by choosing your own profits over their lungs. “Nice – we have to live here too