Turning Short Term Gain into Long Term Losses

One area that accounting does not get right is accounting for the long term effects of short term actions.

Short term you can put crappy plastic in your car and save a couple of hundred dollars per vehicle.  Long term you have spend thousands extra per vehicle in pricing discounts and advertising because your reputation.

Short term you can reduce employee shifts moving people to part time to save even more by reducing benefits.  Long term good employees will leave and the ones that are left have such a poor attitude that people stop coming to your store.

Short term you can beat your suppliers down and make an extra ten percent on your appliances.  Long term people don’t trust your brand and go direct.

In the software industry there is a term for this and it’s called “development debt”.  It’s when you write quick and dirty code to solve a problem but you know you are going to have to come back and fix it.  Ben Horowitz wrote and excellent piece about “management debt” http://bhorowitz.com/2012/01/19/management-debt/

The problem in my first three examples is there is no way to account for this even though the consequences are all monetary.  There should almost be an entry in the balance sheet because the short term income is going to be repaid with interest.  This is where “vision” and “leadership” come into play.  Great companies know that there are no short term fixes to long term problems.

Fiefdoms and Politics

It’s surprising at how fiefdoms and politics try and sneak in as the company grows from a startup to a 100 person company.  Every entrepreneur I know confirms this experience.  Understand I don’t like measuring a company by employees.  I’d rather have a ten person company that generates and delivers $20M of value/sales than a

Netflix and Content Aggregation

I think what Netflix did was genius, except for the hurried name, and the de-linking of playlists.  If they had called it Netflix DVD and Netflix Instant and then had Netflix recommendations, library, and playlist it would have been perfect. They solved the HUGE chicken and egg problem: no content provider wants to provide content

VC Entrepreneur Relationship is of a Sultan and Harem

It’s not a marriage! Generally when the relationship starts off there is an asymmetric split of power.  The entrepreneur believes if they just get VC they will be successful, the VC is deciding which of many, many deals they will fund.  This is like the Sultan picking out the new member of the harem. Once

The Bakersfield Massacre

I am going to start writing about sales.  I am going to start with my worst sales call ever.  This is always a question I ask in an interview, no matter what field you work in if you’ve been doing something well, there has been a time when it went all wrong. Background: It started

Wasting Money

All companies waste money.  It’s a question of when, how much, and whose. In addition to projects which didn’t work out from a market acceptance or technical feasibility, all companies make bad hires, spend money on marketing that doesn’t work, go down a wrong technical path. It’s ok.  As long as you understand sunk costs

Working with Accountants

The first thing I want to get out of the way is that accounting does not have to be complex in a small company.  As you become huge it can become complex, but like many things people sometimes make things complex to hide the underlying facts.  It’s harder to make something complex simple than it

Working with Lawyers

Working with lawyers is an important skill for an entrepreneur to learn.  Unfortunately like learning sales skills it’s not something that’s discussed often in polite circles.  I’m not talking about learning about the law such as understanding term sheets, service level agreements, etc.  Search the web and you can quickly find abundant material describing what

The User, The Consumer, The Public and Monetization

I really have been thinking lately about monetization.  And the difference between people when they are “the user”,  “the consumer”, and “the public” You can have a super useful site for the user, but they aren’t willing to pay for it.  They’ve come to expect it for free and won’t try unless you give them

Thoughts on Groupon

Groupon’s tremendous success in the local market has really gotten me thinking.  I think about it because five years ago we had a project to build a coalition of local merchants and it failed. Why is Groupon so successful?  They effectively removed the barriers to getting local merchants to spend marketing dollars. Top Barrier: