THE STORY
Years ago my team was proposing a new business plan to our CEO. In brief, the idea was to stop a competitor’s aggressive move into our markets by making a reciprocal move into their most profitable market. Since we were in a stronger cash flow position than them, we could afford to attack their key source of cash, and they would have to retreat in order to protect their core.
We could inflict great pain on them in their key market with
only limited pain on ourselves. And this would cut off the cash they were using
to attack us. Hence, we would create a long-term gain for ourselves with only a
small immediate hit to ourselves.
The CEO listened to the detailed strategy with a puzzled
look on his face. Eventually, he looked up and said, “Don’t give me a strategy.
Just tell me how to make money.”
Since the strategy did not immediately make more money for
the firm, the CEO rejected it. As a result, the competitor continued attacking
our company. Eventually, their cash flow became even stronger, so they became
even more aggressive. Over time, this aggressive behavior wiped out a key
division of our company, leaving us with a huge loss of earnings.
The CEO’s actions helped us make a little bit more money in
the near-term, but wiped out an entire division in the long term. It appears
that we would have made a lot more money if we had focused less on making money
and more on having a strategy.
In the world of capitalism, making money is a good thing. If you aren’t eventually making money, your investors and other key stakeholders will get upset. However, if your only motivation is to obtain money, then you may make decisions which lead to bankruptcy. The irony is that a single motivation towards money is not usually the best path for achieving the most money.
As we saw in the story, the best path for making the most
money involved a time consuming process which caused near-term pain. By rejecting
this approach and instead taking steps which created the most money
immediately, the company put itself on a long-term path which destroyed a key
division of the company.
Key decisions are made based on what motivates us. If “making
money right now” alone is the key motivation, then we may end up making the
wrong decisions. Other motivators are more likely to make more money.
The principle here is that motivations matter. And the singular motive to just “make money” is not the best motivation.
The Principal
Applied to Entrepreneurism
Many studies have been done to look at what makes a successful
entrepreneur. These studies consistently show that if the primary motivation
for the person becoming an entrepreneur was “to make a lot of money,” then they
usually failed as an entrepreneur.
Becoming a successful entrepreneur takes a lot of hard work
and a lot of sacrifice. It often requires living near the poverty line for
quite a while before the business takes off. If all you want is a lot of money
right away, then you typically will not put up with the level of sacrifice
needed to succeed as an entrepreneur. So you will fail.
In fact, there was a recent stream of articles on Quora.com
about people who voluntarily chose to become homeless in order to invest
everything they had into their entrepreneurial start-up. In essence, they were
looking for ways to become as personally cashless as possible for the sake of
building the business. That type of sacrifice requires a different type of
motivation than merely wanting to make money.
The studies on entrepreneurism usually show that the most
successful entrepreneurs are motivated primarily by a desire to create a
superior solution over what is currently in the marketplace. They are more
driven to build a better answer for others than build a bigger pile of cash for
themselves. Yet, ironically, by not focusing so much on the bigger pile of
cash, the entrepreneur is more likely to eventually have that big pile of cash.
The larger, grander, and nobler motive of giving the world a
better alternative is needed to motivate the extreme levels of sacrifice needed
to create success. It also has a secondary benefit. Customers don’t just want
to give you money because you want them to give it to you. The customer wants
great value. If you are motivated to provide superior value for the customers, then
you are motivated by the same thing that will motivate customers to give you
their money.
In other words, an outward motivation to better the lives of
others is the best way to get others to voluntarily want to give you the money needed
to get rich. This point really reached home to me when watching the recent movie
about the life of Steve Jobs. Making money was nowhere near the top motivator
for Jobs. He was driven by a motivation to make great products (and got very
angry with those who did not share that motivation). Yet, in the end he was
very wealthy.
If all you want is a lot of money and aren’t motivated by a
larger purpose, then you’re probably better off seeking a life of crime than
one of entrepreneurism. In crime you get the money involuntarily from people.
Rather than giving them a reason to want you to have their money, you just
steal it.
This is not to say that successful entrepreneurs have no
motivation for wealth. No, a desire to be rewarded for one’s sacrifices is
logical. If there is no potential for a pot of gold at the end of the rainbow,
then the entrepreneur will eventually stop the effort of chasing the rainbows.
The point is that a money motivation alone is usually not enough. A larger,
external motivation to provide the world something better is also needed.
The Principle
Applied to Big Business
This same general principle also applies to large
corporations. In the story at the beginning of the blog, we saw a large corporation
destroy one of its business divisions because it focused too much on looking
for easy ways to make money quickly rather than looking at the sacrifices
needed to ensure long-term viability.
The grander, market-based motivations help large
corporations in many ways. First, they provide a reason for all of the
employees to give a strong effort on behalf of the company. Let’s face it. In
large businesses, most of the employees are not going to become extremely
wealthy. So why should they put in the extra effort?
When you have a business mission based on a larger, nobler
goal, you provide a motivator that everyone can rally around. There’s the old
story of the government official in the 1960s who was getting a tour of the
NASA operations. He was asking people at NASA what they did. When he asked the
question to a NASA janitor, the janitor replied “I’m helping to put a man on
the moon.” Because the janitor captured the larger vision, he became a more
diligent janitor.
Is your mission wrapped in a nobler goal, like putting a man
on the moon? This is a great motivator for the masses in your organization.
Second, if a large business does not see its mission in
larger terms, then it will not know what to do to succeed. Many large
businesses have strategic plans which say little more than “We want to make a
lot of money.” Sure, they may disguise it in more “flowery” language and make
it sound more tangible by attaching a numeric target to it. But fancy words and
numeric targets won’t disguise the reality that these types of “strategic plans”
are nothing more than vague wishes for greed.
Just because you can say “We want to make a lot of money”
does not mean that you have a clue as to how to make that money. Money is made
when you have a solution desired by the marketplace that you can profitably
provide because of the unique business model you have designed to deliver that
solution. Unless your business has a specific strategy about…
1.
What it is delivering to the marketplace;
2.
Why it is a superior solution; and
3.
How it can be delivered profitably
…then you will not make those big piles of money. Without a
reason to succeed, there is no reason to expect to succeed. Therefore, large
companies need a planning process to ensure that the reason to succeed is
discovered.
Finally, in large companies, you have lots of people doing
all sorts of different things. If there is not a common understanding of what
your success formula is, then employees will go off in all sorts of different
directions. These uncoordinated efforts will be more like random anarchy than a
coordinated march to success.
If you want a large company to be successful, you need to everyone
moving in the same direction towards that success formula. That requires not
only developing the grander plan, but making sure it is widely known and is
rewarded when followed. Otherwise, the plan will not reach reality.
People act based upon their motivations. Ironically, the best primary motivation to create business wealth is not an inner motivation for wealth. Instead, it is an outer motivation to provide a superior solution in the marketplace. This outward focus forces one to create the types of value needed to cause others to pay you for your offering (the source of wealth). It also provides that higher cause which motivates people to work harder. That is why companies need strategic plans which outline what the outward success formula is and put it in words which motivate employees to put it in place because it achieves a higher, nobler goal.
In the movie Wall Street, Michael Douglas (playing the role of Gordon Gekko) famously says, “Greed is Good.” I say “Greed is Not Enough.” You also need a viable plan and an external motivation which transcends greed.
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