4 ms·

You cannot maximize near term profits and long term customer trust. And the financing systems of the modern economy are set up for near term profits. Thus you c

You cannot maximize near term profits and long term customer trust. And the financing systems of the modern economy are set up for near term profits. Thus you cannot do right by your customers unless you are financed outside of the finance industry (bootstrapping, family business, rich dude).

unlinked_dll 7y ago
If profit is orthogonal to a core value of the brand, then that value is not important to the market. That's just knowing your customers. As well, near term profit and long term brand goals are never decoupled. You don't one day decide "our brand is X" but "our brand will be X" and you need to do Y and Z today and every day following to build up to X. And I firmly reject the idea that near-term profit is disjoint from long-term consumer trust, at least for professional products and tooling. If they don't trust you not to screw them today or tomorrow, they won't pay you. I think this is why Google and Facebook can't make money from anything but advertising, they have to give away everything else for free or at a loss because no one trusts them at all.
- wool_gather 7y ago
  > I think this is why Google and Facebook can't make money from anything but advertising, they have to give away everything else for free or at a loss because no one trusts them at all. I'm not sure about this. Google at least was not broadly considered untrustworthy for the first half or more of its existence. Indeed, the key reason that they're considered untrustworthy is the decisions they've made in support of making their money from advertising.
  - samatman 7y ago
    I think it's a little more subtle than that. Google in the late Noughties was awash in advertising money and inculcated a culture of 'internal startups', where they would offer services (Wave, Reader, Google+) without much of an eye toward profit. Eventually, higher-ups would notice that these services were costing money, and shut them down. Today you'd be a fool to invest in the long-term stability of a Google service that doesn't have an obvious tie to the advertising firehose, because they've yet to figure out how to make money any other way.
    - wool_gather 7y ago
      Very good point; I neglected this aspect.
- learc83 7y ago
  It happens all the time. Tool Company A is known for making quality tools. Company B buys company A and immediately decides that they can make more money in the short term by using cheaper components. The cheaper components aren't immediately obvious--it takes a few hundred hours of wear to be apparent. It takes even longer for word to spread that Tool Company A is no longer a quality brand. Company B sacrificed the long term brand, but they managed to increase short term profits.
  - unlinked_dll 7y ago
    I mean there are a couple ways to look at that. For me it's recognizing that building trust as a brand is part of creating value. The pump and dump scheme that you're describing is about exfiltrating that value from the brand. But that doesn't really work until either the company is in a situation where you need to pump and dump to exit or it's in late enough stage that the leaders/owners want to exit/retire. Either way the long term health of the company and brand don't matter, by that point it doesn't matter to build trust with customers.
    - learc83 7y ago
      That's not what pump and dump means. >Either way the long term health of the company and brand don't matter It's does matter because the long term option will often result in more value overall to the new owners and customers. There is definitely a tension between short term profit and long term profit. It's well recognized and has been studied extensively.
- barrkel 7y ago
  In most mature companies, ambitious executives can earn a nice bonus trading long-term quality for a short-term profit increase. They'll move on before the damage to the brand has been realized. In order to defend the long-term brand, short-term profit needs to incorporate some estimation of the net present value of that brand as part of its calculation. It could be bonus clawbacks or other conditionality on rewards; but it needs to be something, or else there is a natural temporal arbitrage. https://www.investopedia.com/terms/t/time-arbitrage.asp https://www.investopedia.com/terms/t/time-arbitrage.asp I say mature companies because in younger companies, the leadership knows how the whole company works, and can spot the problems when smart-asses come along to pull their short-term profit tricks. The older a company gets, the more likely it is to have generalist leadership who use delegation, metrics and financial incentives to run different divisions of the company. Get the incentives wrong, and get exploited.

unlinked_dll 7y ago

If profit is orthogonal to a core value of the brand, then that value is not important to the market. That's just knowing your customers. As well, near term profit and long term brand goals are never decoupled. You don't one day decide "our brand is X" but "our brand will be X" and you need to do Y and Z today and every day following to build up to X. And I firmly reject the idea that near-term profit is disjoint from long-term consumer trust, at least for professional products and tooling. If they don't trust you not to screw them today or tomorrow, they won't pay you. I think this is why Google and Facebook can't make money from anything but advertising, they have to give away everything else for free or at a loss because no one trusts them at all.

wool_gather 7y ago
> I think this is why Google and Facebook can't make money from anything but advertising, they have to give away everything else for free or at a loss because no one trusts them at all. I'm not sure about this. Google at least was not broadly considered untrustworthy for the first half or more of its existence. Indeed, the key reason that they're considered untrustworthy is the decisions they've made in support of making their money from advertising.
- samatman 7y ago
  I think it's a little more subtle than that. Google in the late Noughties was awash in advertising money and inculcated a culture of 'internal startups', where they would offer services (Wave, Reader, Google+) without much of an eye toward profit. Eventually, higher-ups would notice that these services were costing money, and shut them down. Today you'd be a fool to invest in the long-term stability of a Google service that doesn't have an obvious tie to the advertising firehose, because they've yet to figure out how to make money any other way.
  - wool_gather 7y ago
    Very good point; I neglected this aspect.
learc83 7y ago
It happens all the time. Tool Company A is known for making quality tools. Company B buys company A and immediately decides that they can make more money in the short term by using cheaper components. The cheaper components aren't immediately obvious--it takes a few hundred hours of wear to be apparent. It takes even longer for word to spread that Tool Company A is no longer a quality brand. Company B sacrificed the long term brand, but they managed to increase short term profits.
- unlinked_dll 7y ago
  I mean there are a couple ways to look at that. For me it's recognizing that building trust as a brand is part of creating value. The pump and dump scheme that you're describing is about exfiltrating that value from the brand. But that doesn't really work until either the company is in a situation where you need to pump and dump to exit or it's in late enough stage that the leaders/owners want to exit/retire. Either way the long term health of the company and brand don't matter, by that point it doesn't matter to build trust with customers.
  - learc83 7y ago
    That's not what pump and dump means. >Either way the long term health of the company and brand don't matter It's does matter because the long term option will often result in more value overall to the new owners and customers. There is definitely a tension between short term profit and long term profit. It's well recognized and has been studied extensively.
barrkel 7y ago
In most mature companies, ambitious executives can earn a nice bonus trading long-term quality for a short-term profit increase. They'll move on before the damage to the brand has been realized. In order to defend the long-term brand, short-term profit needs to incorporate some estimation of the net present value of that brand as part of its calculation. It could be bonus clawbacks or other conditionality on rewards; but it needs to be something, or else there is a natural temporal arbitrage. https://www.investopedia.com/terms/t/time-arbitrage.asp https://www.investopedia.com/terms/t/time-arbitrage.asp I say mature companies because in younger companies, the leadership knows how the whole company works, and can spot the problems when smart-asses come along to pull their short-term profit tricks. The older a company gets, the more likely it is to have generalist leadership who use delegation, metrics and financial incentives to run different divisions of the company. Get the incentives wrong, and get exploited.