Wednesday, April 8, 2009

Short Term Disease

Lately in the financial meltdown, we have seen lots of examples of what I’ll call “Short Term Thinking Disease”. This is an infirmity that causes us to think only in terms of short term advantage, as opposed to longer term strategic thinking. The simplest example I can cite is the person who spends $10 a week on lotto tickets, looking for the big score, as opposed to saving the $10 a week in a savings account or IRA. Unless this hypothetical person is extremely lucky, in 10 years this person will be out $5200.00. Had they saved this amount in a conservative investment paying even a 4.00% return, they’d have: $6383.33.

This is a simple example. But we humans are wired for this sort of thinking, and unless we find a way to rise above this, we are quite possibly in a great deal of trouble. Consider the many CEOs of large corporations who, at the risk of alienating customers and employees, make savage cuts in service and quality in order to show a short term profit. They seem not to be concerned at the long term consequences of their actions. And inevitably the customer base shrivels up over time, and the corporation that has behaved like this is acquired or goes away completely. There are any number of companies that are dancing this type of death dance.

I once lived in a city that had two car dealerships that sold the same brand of car. One dealership treated customers respectfully, had a very good service department, and tried really hard to build a loyal following around not only the brand of car, but also their dealership. This resulted in a steady and respectable business that was sustainable. Their competition was not concerned about whether customers came back. They were all about getting a customer’s name on a sales contract. If the customer later discovered that they had been cheated, so what? It was too late. In addition, they ran a shoddy and dishonest parts and service department. People would go there once, and never go back again.

Sell one car to every eligible buyer in the city, or slowly and steadily build a loyal customer base? If you choose the former, what happens when you have swindled every possible customer? It simply is not sustainable.

We find ourselves in a difficult situation with respect to the economy precisely because of this same type of thinking at every level. Do we do the research buy a solid stock and hold it (boring!) or play the day-trader game (exciting!). Do we buy a home we can’t afford with a mortgage that will become intolerable 5 years down the road? Do we borrow to buy what we want to have today rather than saving for it?

All of this at every level has brought our economy crashing down. Why? Simply that this type of behavior is not sustainable. It may be flashy, it may bring instant gratification (which is just as quick to disappear), and it may even accrue short term financial gain for some.

I have had my small software business for 25 years now. I cannot tell you that I have always thought strategically for the long term. There have been times that I made a mistake or irritated a customer. There have been times I have chosen projects poorly, underestimated the time or costs involved. This sort of thing happens to all small business owners. For the most part, though, I have charged less than the competition and given my customers more. That is why I am still around, thriving and successful. This is why my average customer has remained with me for 17 to 18 years, with many having been on the books for over 20 years.

It is very difficult to resist the temptations presented by the mass media to go for the short term gain. But resist we must.

Corporations and small businesses need to obsess less about the bottom line, and more about pleasing customers and building quality products and services. Odd thing about that is that if we all do that, the bottom line will take care of itself.

All of us need to start being more self sufficient. Take $5 a week and build a slush fund. Take another $5 and save for the future. You won’t miss it. You can use the slush fund every now and then for some discretionary treat. And your future will thank you very much.

Matt Cantillon

About Me

My photo
Ann Arbor, MI, United States
I am a software developer. I have been in that business for over 4 decades. I am also recently widowed, having lost the love of my life to ovarian cancer.