Wall Street insights: driving desire for unnecessary growth

Wall Street insights: driving desire for unnecessary growth
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First Published: Tue, Jun 03 2008. 11 15 PM IST

 Hard talk: Jack Trout says Wall Street often creates an environment that encourages bad, sometimes irrevocable, things to happen.
Hard talk: Jack Trout says Wall Street often creates an environment that encourages bad, sometimes irrevocable, things to happen.
Updated: Tue, Jun 03 2008. 11 15 PM IST
The desire for growth is at the root of evil doings.The only thing that’s obvious to Wall Street is money.
Alas, poor Krispy Kreme (a well-known U.S. donut manufacturer), it had a meteoric rise and an ignominious crash. The report stated that it was caused by “Egregious” accounting to satisfy Wall Street’s hunger for growth. They have become a poster child for what can happen to a brand that is being driven by the stock price instead of the marketplace.
Hard talk: Jack Trout says Wall Street often creates an environment that encourages bad, sometimes irrevocable, things to happen.
Here’s the problem. Wall Street often creates an environment that encourages bad, sometimes irrevocable, things to happen. In a way, they set up a greenhouse for trouble, and like a greenhouse, what it’s all about is encouraging things to “grow.”
The well-known economist Milton Friedman put it perfectly when he said, “We don’t have a desperate need to grow. We have a desperate desire to grow.” That desire for growth is at the heart of what can go wrong for many companies. Growth is the by-product of doing things right. But in itself, it is not a worthy goal. In fact, growth is the culprit behind impossible goals.
CEOs pursue growth to ensure their tenures and to increase their take-home pay. Wall Street brokers pursue growth to ensure their reputations and to increase their take-home pay.
But is it all necessary? Not really. When you consider that people do damaging things to force unnecessary growth, you can say that it’s a crime against the brand. A true story illustrates how the desire for growth is at the root of evil doings.
I was brought in to evaluate business plans for a large multibrand drug company. In turn, the brand managers stood up and presented their next year’s plans. In the course of a presentation, a young executive warned of aggressive new competition in his category that would definitely change the balance of power. But when it came to a sales projection, there was a predicted 15 per cent increase. Instantly, I questioned how this could be with the new competition.
His answer was they were going to do some short-term maneuvering and line extension. Long-term, wouldn’t this hurt the brand? Well, yes. Then why do it? Because his boss made him put in the increase, and I would have to talk with him.
One week later, the boss admitted the problem but said his boss needed the increase because of, you guessed it, Wall Street.
Consider the saga of McDonalds. Not too many years ago their sales and earnings were flat. So the then CEO Jack Greenberg did what most red-blooded CEOs would do: He rolled out something called a New Tastes Menu—a collection of 44 items to be rotated by franchisees. All this did was to produce lines at every cash register. Fast food became slow food with the ensuing complaints.
All that was turned around with the late CEO Jim Cantalupo’s back to basics drive. He got off the Wall Street growth bandwagon and drove home the need for quality, cleanliness and upgrading products and services. As he said, “We’ve taken our eyes off the fries.” McDonald’s newfound success wasn’t so much about “I’m loving it”—it was more about “I’m fixing it.”
Did you ever wonder why those very successful privately held companies such as Milliken or Gore-Tex rarely show up in the press? That’s because no one is staring at their numbers quarter after quarter. All they have to worry about is their business. And if they are happy with it, that’s all that matters. It reminds me of yet another story:
The Tico Fisherman and the Wall Street Analyst
An American businessman was at the pier of a small coastal Costa Rican village when a small boat with just one fisherman docked. Inside the small boat were several large yellow fin tuna.
The American complimented the Costa Rican Tico on the quality of his fish and asked how long it took to catch them.
The Tico replied, “only a little while.” The American then asked why he didn’t stay out longer and catch more fish. The Tico said he had enough to support his family’s immediate needs.
The American then asked, “But what do you do with the rest of your time?”
The Tico fisherman said, “I sleep late, fish a little, play with my children, take siesta with my wife Maria, stroll into the village each evening where I sip wine and play guitar with my amigos. I have a full and busy life, señor.”
The American scoffed, “I am a Wall Street executive and could help you. You should spend more time fishing and with the proceeds buy a bigger boat and a Web presence. A scaleable go-forward plan would provide capital for several new boats. Eventually you would have a fleet of fishing boats. Instead of selling your catch to a middleman, you would sell directly to the processor, eventually opening your own cannery. You would control the product, processing, and distribution. You would need to leave this small coastal fishing village and move to San Jose, Costa Rica, then Los Angeles, and eventually New York City, where you would outsource tasks to third-party clients to help run your expanding enterprise in a vertical market.”
The Tico fisherman asked, “But señor, how long will this all take?”
To which the American replied, “15-20 years.”
“But what then, señor?”
The American laughed and said, “That’s the best part. When the time is right, you will announce an IPO and sell your company stock to the public and become very rich. You will make millions.”
“Millions, señor? Then what?”
The American said, “Then you will retire, move to a small coastal fishing village where you can sleep late, fish a little, play with your kids, take siesta with your wife, and stroll to the village in the evenings where you will sip wine and play your guitar with your amigos.”
Excerpted from marketing guru Jack Trout’s forthcoming book, In Search of the Obvious.
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First Published: Tue, Jun 03 2008. 11 15 PM IST