Why fitness trainers, hair stylists, and massage therapists are smarter than Wall Street. Forbes recently published the attached article referencing an article published in the New York Times from Sept. 1970 by Milton Freidman which sparked a multi-decade obsession with shareholder value as the centerpiece of all business objectives. This narrow focus spawned a whole tidal wave of sloppy thinking such as
1) “Speed to market is everything”
2) “First mover advantage”
3) “Grow and grow fast no matter what”
Over time the biggest proponents of the idea such as Jack Welsh of GE eventually came around to say “On the face of it, shareholder value is the dumbest idea in the world. Shareholder value is a result, not a strategy… your main constituencies are your employees, your customers and your products.”
The simple idea being that if you focus on providing excellent service to satisfied clients then your business will likely grow, produce a profit, and have some considerable degree of sustainability. Independent service providers such as trainers, massage therapists, and stylists seems to understand this clearly. Why doesn’t Wall Street or the VC community for that matter? Maybe executives and investors could learn a thing or two from time tested professions and business models that prove the viability of entering markets with literally hundreds of thousands of other competitors and still being able to build a client base, make a profit, and sustain over time. Instead of rushing to market, fitness trainers grow their business over time through relationships and word of mouth instead of raising a bunch of money and lighting it on fire with a massive branding campaign that unrealistically intends to expedite the process. With over 100,000 massage therapists already in the market, there is no “first mover advantage” yet somehow, thousands more can enter and make a living each year by providing good service to a well management client base. Hair stylists don’t focus on “growth at all costs” because they recognize that each client represents a new opportunity for referrals and that these are more likely to happen if they provide excellent quality of service and build a relationship with each client over time. Slow and steady has proven to be a better formula over time than the very low success rate of VC funded companies pushing for an exit within five years at all costs. Just maybe there will be an emerging pool of investors that will see the value in longer term value generation. I suspect these investors will enjoy higher success rates and better returns. Maybe The Harvard Business school should invite a few trainers, stylists, and massage therapists to speak to the next graduating class to spread the word about how to start, build, and sustain profitable businesses.