The most dangerous phrase in business

Ask any business founder why they started their company and you’ll hear about a product or service. They will tell you about a moment of inspiration. Or, maybe you’ll hear about a long path of research. If you ask them what the purpose of their business is, you might hear, “To make money.” If pressed further, they may say, “To service clients,” or “To solve a problem.” These are all good motivations for a company. But, there is one phrase that should send a chill down your spine when you hear it.

“maximizing shareholder value”

Now, I’m not suggesting that shareholders shouldn’t get value from their investments. I’m not saying that a business shouldn’t try to be profitable. What I am saying is this. If a business focuses on “maximizing shareholder value”, the business isn’t focusing on why it started in the first place.

Shareholders don’t provide revenue. Customers do. Focusing on the shareholders often comes at the expense of the customers. When a business focuses on shareholders, it has lost its primary purpose.

Consider the case of the Comcast customer who tried to cancel his service only to have the Comcast agent accost him. Search for “rude gate agent” and you will find stories of poor service at airports. In many of these cases, workers are doing what their training tells them. These agents train to keep customers, cut costs, and improve the bottom line for the company. Yet, in the long run, they only succeed in driving a customer away.

What’s the solution?

I think it should be obvious, but the solution is, focus on the customer. Think about the customer’s needs. Put yourself in the customer’s shoes. Don’t worry about paying a dividend or pushing the stock price up. Those things will happen when satisfied customers become return customers. Cutting corners to raise the value of the stock may work in the short run, but it is unsustainable in the long run.