Nimble, Focused, Feisty. Sara Roberts
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wish they could act this way, if only Wall Street would let them. But part of me fears that, by the time they’ve scaled the heights of a Fortune 500 organization to become CEO, the pressure to meet quarterly expectations has already thoroughly beaten this spirit out of them. Perhaps that’s why new-economy startup founders, with a touch of naïveté in their tone and bolstered with capital from eager investors, are still plucky enough to think that they will be rewarded and not crushed when they voice such a possibility-over-profitability mindset out loud.
There’s a lingering suspicion about such an attitude. It’s probably inherent in any skeptic from Wall Street or from the managerial profession, but it was certainly exacerbated by the excess idealism of the dot-com boom. Remember when Pets.com was said to be worth more than something like GE and GM combined? Despite generating no revenues, having few customers, and offering little more than an idea, pioneering e-commerce companies were valued many multiples over traditional product and manufacturing companies. No one could really explain why—except to point to the vast untapped potential such companies represented. But no one looked too closely below the surface, either, to see if a viable company existed beneath the hype.
A sickening stock-market collapse provided a correction to such thinking but obscured an important point as a result. The pursuit of possibility over profitability provides distinct advantages when it comes to building an enduring and successful enterprise today. This mindset is key to the focused culture of organizations that are now clearly outpacing traditional companies in terms of real growth.
It is not to say that new-era companies abhor profits. They believe in profitability. But they do not pander to the common shareholder mindset of eking all possible gains in the short term at the expense of long-term growth while in the process short-changing and alienating customers. Instead, companies that believe in possibility over profitability trust that if they make customers extremely happy—indeed, if they exceed their expectations, and not just please them but delight them—this will result in far greater returns in the long run. Accordingly, instead of disbursing short-term profits to shareholders, they reinvest in their own business to foster the incremental and disruptive innovations that will tighten the bond with customers for the long haul. As Mark Zuckerberg wrote in his own founder’s letter: “We don’t build services to make money; we make money to build better services.”7
Companies that believe in possibility over profitability trust that if they make customers extremely happy—indeed, if they exceed their expectations, and not just please them but delight them—this will result in far greater returns in the long run.
Amazon is another powerful example of this mindset. Founder and CEO Jeff Bezos is known as the Prophet of No Profits for his obsessive focus on growth over earnings. This has made Amazon a remarkable success story in the history of American capitalism, amusingly described by Matthew Yglesias in Slate.com as “a charitable organization being run by elements of the investment community for the benefit of consumers.”8 In 2013, Amazon’s net income was a paltry $274 million on sales of $74.5 billion, or less than half of 1 percent. It’s hard to imagine investors of any traditional company tolerating such razor-thin margins. Where are the corners that can be cut, the fat that can trimmed, the unrealistic schemes that can be put off to make Amazon more profitable in the short term? Bezos will have none of it and insists that Amazon’s reinvestment in products and services that delight customers is the best way to go.
As Bezos put it in a letter to shareholders, “Our heavy investments in Prime, AWS, Kindle, digital media, and customer experience in general strike some as too generous, shareholder indifferent, or even at odds with being a for-profit company . . . To me, trying to dole out improvements in a just-in-time fashion would be too clever by half. It would be risky in a world as fast moving as the one we all live in. More fundamentally, I think long-term thinking squares the circle. Proactively delighting customers earns trust, which earns more business from those customers, even in new business arenas. Take a long-term view, and the interests of customers and shareholders align.”9
This mindset leads to a strategy that Yglesias sees as truly formidable. “Amazon sells things to people at prices that seem impossible because it actually is impossible to make money that way. And the competitive pressure of needing to square off against Amazon cuts profit margins at other companies, thus benefiting people who don’t even buy anything from Amazon . . . if you own a competing firm, you should be terrified. Competition is always scary, but competition against a juggernaut that seems to have permission from its shareholders to not turn any profits is really frightening.”10
For companies like Amazon, customers are always top of mind. Products and services are created with a laser-like focus on customers’ needs and what they value. Such companies not only try to keep lock-step with their customers as needs evolve, but actually try to stay a step ahead. They’re continually solving for customer problems and opportunities rather than starting with the question of how they might open a new revenue stream. They’re infinitely curious about the consumer and what makes her tick. Their decisions never veer far from those desires or potential desires. They know that they need to move quickly to fulfill those needs because the customer can easily find a better solution or a better supplier if the business can’t deliver.
From a long-term growth perspective, Wall Street ought to be very interested in such a mindset and the strategies that result. Companies like Facebook, Amazon, and especially Google are actively transforming the economy. They’re organized embodiments of creative destruction. They’re category killers and category makers. They destroy products, services, and whole sectors that do not effectively identify and deliver value to consumers, and they reshape or invent sectors that do. Of course, they want to make money from their innovations and performance excellence, but they believe that making money and generating shareholder returns is the cart that follows the horse, not the other way around as traditional companies believe. The horse is the innovation and value. The money is in the cart. And the cart is very, very big.
Google has integrated this mindset into its purpose, operations, strategy, and workflow. According to Schmidt and Rosenberg, Brin and Page began Google with a few simple principles, “first and foremost of which was to focus on the user. They believed that if they created great services, they could figure out the money stuff later.”11 Or as Brin and Page put it themselves in their founders’ letter, “Serving our end users is at the heart of what we do and remains our number one priority.” But as Schmidt and Rosenberg add, this is because they believe that if they focus on the user, “all else will follow.”12
Google makes a great distinction between the user and the customer that’s worth noting. The customer—the entity that gives Google money—is predominantly advertisers, at least in the case of their search-engine services. The user is us—or everyone who uses those services. Google doesn’t believe in pandering to the customer, because it thinks this will deflect from the primacy of the user. The user is the target for value that makes the user Google’s true customer. What will the user want? What will the user value? What will the user be blown away by?
If Google focused only on what its advertising customers wanted, those answers would likely be very prosaic and small. Advertising customers want results in the short term and don’t really care about long-term implications. User customers, however, have a different kind of investment in Google innovation. They want constant improvement and big leaps. They want to do the stuff they do now even better and be delighted by what’s next.
That’s why Google very deliberately divides its innovation efforts along a scale that runs from incremental to big bets. Google openly focuses 70 percent of its work, attention, and resources on continuous improvement of products and services in existence. It knows that it must continue to meet and exceed expectations to fulfill the trust that customers and users have in Google, and satisfy their needs. Then, it devotes 20 percent of its work, attention, and resources to emerging products that are showing some signs of becoming successful offerings. This keeps innovations flowing in the pipeline and getting closer to release. And it devotes the remaining 10 percent of the resources, brainpower, and creativity of Google to long shots, or what Google calls “moon shots”—stuff that’s completely new,