Build a profitable business- the baby steps part 36

Pursue long-term valuation, not short-term profit. Think balance sheet, not P & L. Winning enterprises can always be recognized by what their golas are. What are they pursuing? Are they in it to make a quick buck or do they want to change the world? This might sound like an odd question, but we find ourselves thinking about this one a lot. Sometimes the question can be more helpful than the answer. This is one of those cases. The reason we are asking this is because there is a great difference in the way you will conduct your business depending on what answer you pick. Most of you have figured out that the “correct” answer to our question is that we are in it to change the world. Now, we do realize that it´s likely that we won´t change the world that much. It´s just a matter of speech. But we like this statement, because it gets our juices flowing. So what if we are not the next Apple of the world? At least we will create something of value to the world, put our customers in focus and make the world a better place. Let somebody else grab the quick buck. We are in it for the long-term value. And the best way to arrive at a massive long-term valuation of your company is to provide the best possible value to your customers. It´s that easy. Stefa´n Persson who built clothing retailer H&M up to become one of the biggest players in the world (and is ranked the 8th richest man in the world) conveys his view on this topic like this:

There are far to many brilliant entrepreneurs today that are more interested in making a quick exit than to stick with their idea and keep developing it. I find that deeply disheartening.

So how do you know if you are in it for the long-term valuation or the short-term profits? Easy. Just take a look at your business plan, your pricing stucture and your goals. For short-term profit producing enterprises it´s all about the money. They are not really that interested in bringing any value to their customers. They are alwasy thinking about how to make some quick extra bucks. Sell. Sell. Sell. Get that merchandise out the door. There will always be a new crop of customers tomorrow. Be aggressive. The problem with the short-term profit companies is that they are limping along. They never really get to take off. Why should they? Customers are not stupid. In fact most customers are quite astute and know a good deal when they see one. And most customers can spot a bad deal miles away. They have been shopping for the better part of their lives. Of course they have developed some skills during that time. You can probably still move inferior deals out the door with expert salesmanship. But as is the case with every flawed strategy, reality will catch up sooner or later, and the money will eventually stop coming in. If you don´t offer real value and only chase the money, the money will flee away. If you focus on providing value, the money will stay around long enough to make you incredibly rich. The way we see it it is the true karma of the business world. At least it is as close to business karma that you are ever likely to find. The logic is simple. Do good for your customer and your profits will take care of themselves. And that´s that.

Something we have often pondered on is why some things turn out to be so amazing while others do not, and yet the perceived time and effort spent on them is almost identical. We have come to the conclusion that the best things we have done in our entrepreneurial lives are all things we were deeply excited about. When the fire in our belly got started we could achieve at the top of our game. We would enter a zone where we did magical things and we didn´t mind working our butts of in the process. After all, if you are busy doing something exciting how can it possibly feel like work? We can honestly say that all the most profitable and worthwhile things we have done in our lives have all been done primarily because of excitement. Money was never an issue. And conversely, we can say that none of the most profitable and best things we have done in our lives has been done for the sake of money alone. It´s a paradox, but the less we have cared about money and the more it was about the excitement of doing it; the more we succeeded in doing something truly amazing. And every time you accomplish something truly amazing the money is often a natural byproduct. Be excited about your company, about the value that your company brings to your customers and how to improve it all. Be excited about going to work in the morning. Be excited about life. If you do, the money will follow. In the words of super-entrepreneur Chris Gardner of Gardner Rich & Co:

Find something that you love. Something that gets you so excited you can’t wait to get out of bed in the morning. Forget about money. Be happy.

Long-term valuation companies are more interested in the needs of the customers. These companies put their customers first and foremost and try to bring some serious value to the table when they interact with their customers. While they too want to make a buck, they are not really focusing that hard on the money. In fact, they can spend loads of time looking for ways to improve their offer, lower their prices or make their service better. They go the extra mile not just to make their customers happy. They are equally interested in keeping an excellent relationship with their providers, distributors and other business contacts. They hope to be around for the next couple of decades, and they hope to do business with the same group of companies and people then too. That is why they want each customer to leave happy and satisfied, and they work very hard at accomplishing that. They understand that superior value and superior service equals money, at least in the long run. They don´t see customer support as a cost, they see it as an important part of what they are offering. The sale doesn´t stop when the moneu has changed hand, that´s just the start of a long-term beautiful relationship. But all relationships need tender care, or they will wither and die. That´s why allround customer satisfaction is so important. The real money does not lie in the first sale. The real money lies in the recurring sales. When you start making sales the 4th or 7th time to a customer, you know you´re on your way to greatness. You know that your long-term focus on value has started paying dividends by being transformed into shorter-term sales. And that´s when the wisdom of focusing on value hits you.

Consider the words of chewing gum industrialist William Wrigley Jr:

I have sometimes been asked what single policy has been most profitable in our business. I have always unhesitatingly answered, restraint in regard to immediate profits. That has not only been our most profitable policy, it has been pretty nearly our only profitable one.

Those are words of wisdom right there. Let´s add some words of wisdom a friend of ours once told us:

If you are after the money you might become a millionaire. If you forget about the money and instead aim to build a great company you could become a billionaire. Whatever you do, make a choice and stick to it.