I can’t imagine anything less interesting in business than maximizing shareholder value. Yet this is what public companies are pressured – if not legally required – to do. A lot of non-public companies follow the same path towards performance and results.
To take it further, maximization as a concept just isn’t interesting to me. I don’t care about maximization. Not maximization of profit, revenue, people, reach, productivity, etc. Not interesting.
I feel like this makes me an outcast in the business world. Part of the minority, the ones who simply “don’t get how it works”.
I get how it works. I just don’t care. I’m not interested in squeezing something so tight that I get every last drop. I don’t want, need, or care about every last drop. Those last drops usually don’t taste as good anyway. My thirst is usually well quenched far before that final drop.
Am I interested in increasing profits? Yes. Revenues? Yes? Being more productive? Yes. Making our products easier, faster, and more useful? Yes. Making our customers and employees happier? Yes, absolutely. Do I love iterating and improving? Yes sir.
Do I want to make things better? All the time. But do I want to maximize “betterness”? No thanks.
I don’t mind leaving some water in the cloth, some drips in the glass, some money on the table. I like knowing there’s headroom. And once in a while it’s a fun challenge to chip away at that headroom. But that’s not for maximization’s sake – it’s for curiosity’s sake. “Can we do it?” is a lot more interesting to me than “we must do it because that’s what you’re supposed to do.”
Having fun, exploring ideas, creating, solving, building great things for you and your customers, being proud of your work, challenging yourself, learning, growing, building a self-sustaining company on your own schedule, adding something useful to the world, and working with great people – that’s what this is all about. Not maximization of a metric.
Sean Stickle
on 12 Feb 13Shareholder maximization is not the real goal of any of the officers of a company anyways. So the rant is really against a myth, not an actual goal of real people.
Q.v. Peter Scholtes, who makes a much more informed rant on this topic: http://www.youtube.com/watch?feature=player_embedded&v=bu7JMAQggfo#!
Jason Fried
on 12 Feb 13Sean: Ignore the shareholder value part. The post is more about the concept of maximization in general. Shareholder value was one example.
Sean Stickle
on 12 Feb 13The actual link to the rant about why the goal of a company tends to be providing personal satisfaction to those who run them.
Ryan Fischer
on 12 Feb 13Funny enough I was just having a conversation about this a few minutes ago. I’ve heard all about getting the maximum profits lately in Chicago. I really don’t want to hear “leaving money on the table” anymore. I want to provide value in my products and services. The value degrades when the price tag is set by others standards.
Dude
on 12 Feb 13Aww, I thought this was going to be a rant against maximizing windows. Who does that still, AMIRITE?!
Interesting nonetheless :)
Laurence McCahill
on 12 Feb 13Brilliant.
Couldn’t agree more. I think it comes down to having a long term view. Making decisions that feel right, rather than perhaps make business sense at first glance. Choosing happiness above shareholder value is something I think more companies will see value in over the coming decade (following the success of Zappos & others).
This is why I’ve been inspired to set up The Happy Startup School. An alternative to building businesses the ‘traditional’ way (ie. hockey stick growth as the only factor). Focusing on making customers happy and the quality of the product more often than not has a positive effect on profits anyway.
There’s a growing movement of people that want to: – Give business a better name. – Build companies where people enjoy going to work every day. – And create organisations that have a real purpose (other than making money).
You can’t measure a nation’s welfare from GDP, so you can’t measure the health of a company from their share price.
Michael Hart
on 12 Feb 13Once in a while it’s a fun challenge… :-)
Richard Ayotte
on 12 Feb 13Awesome stuff. I couldn’t agree more.
Ted Pearlman
on 12 Feb 13I think there’s an additional important – and ironic – point worth making. It is precisely the focus on maximization that prevents success. The same thing happens in education as it does in business. Here’s a great 1-minute video snippet of Alfie Kohn, a very well-respected education reformer, making this exact point. http://www.c-spanarchives.org/clip/4358017
Mark Dodwell
on 12 Feb 13Our fixation with maximization also accounts for some of the most serious problems facing humanity; climate change, boom and bust economics, resource depletion. All of these have roots in modern society’s obsession with perpetual growth.
We should take a hint from nature. Trees don’t grow infinitely tall, they find an optimum that is sustainable.
Jamie
on 12 Feb 13I’ve been interested in what Google has been doing. They seem to be constantly tinkering with “stuff” that has no immediate financial benefit.
A few years ago when they set out to capture photos of every street I remember thinking “that’s crazy”. What is the cost/benefit of that?
Fast forward today: Street View is an amazing tool. I usually look for landmarks when I’m trying to get places. What better way to look for landmarks than to actually see the buildings around your destination?
Laurence McCahill
on 12 Feb 13Also, if maximization and growth was always the answer why aren’t there Oxford Universities in every country? I agree with Mark that sustainable business is the future.
Vince
on 12 Feb 13@Jason Fried
You should know better than most that Wall Street isn’t really pushing to “maximize shareholder value”.
If that was the case, Amazon’s (an investor in 37signals) stock price would not have gone UP even when they post a Net Loss recently.
http://www.bloomberg.com/news/2012-10-25/amazon-posts-loss-as-livingsocial-stake-loses-value.html
Brett Atkin
on 12 Feb 13I understand what you’re saying and mostly agree. Sometimes when you try to make things better, faster, bigger, more profitable, etc…you actually make them worse.
I wonder what DHH would say about maximizing the downforce/acceleration/braking/top end of his race car. This is a dichotomy though in some areas. Too much downforce impacts top end. You have to find the balance that allows you to get around the track in the fastest time.
It is all about balance in my mind.
GregT
on 12 Feb 13That’s great for 37 Signals, but if you were a public company and I owned stock in you, I would not be too happy if you were spending my money “Having fun, exploring ideas, creating, solving, building … being proud of your work, challenging yourself, learning, growing … working with great people”. But hey, it’s your money and company, more power to you!
Luke Miler
on 12 Feb 13Awesome write up Jason! Cannot agree more – let’s make something great for us and others, solve problems, grow both intellectually and business-wise, debunk stupidity and have tons of fun and time to awe! All into that, hugs and kisses guys! :)
Mikael
on 12 Feb 13Okay, you might not maximizing in the sense of achieving a 100% complete solution, but you’re definitely optimizing.
So you are definitely striving towards maximization, even if you might accept that you won’t/can’t/don’t want to achieve it for whatever reason.
Ryan
on 12 Feb 13absolute maximization = slash and burn
uvrnlhar
on 12 Feb 131
Rob Dillon
on 12 Feb 13“A man is a success if he gets up in the morning and goes to bed at night and in between maximizes shareholder value.”
ecbp
on 12 Feb 13Right on Jason. Very well put.
‘Maximizing’ as a goal is such a clinical way of looking at things; a great way to suck the creativity and enjoyment out of business and life.
Andre
on 12 Feb 13Indented paragraphs are back on SVN? What happened to block paragraphs, which are vastly more readable (e.g. compare one of the multi-paragraph comments above with the actual blog post)? I hope this is just a split test.
Daniel Heath
on 13 Feb 13Shareholders gave you money to build a business (by buying stock from you).
Once you sell shares, you work for your shareholders. Kind of like having a boss, except without support/direction/leadership other than ‘make our money back’.
This is a pretty big part of why bootstrapped startups are great.
Des
on 13 Feb 13You hit on a really resonant note in your Inc article, when you pointed out that cash isn’t the only thing you leave on the table.
You leave complexity on the table, you leave disgruntled employees on the table, you leave lacklustre work, disappointed customers, and shady tactics on the table.
The goal is to walk away from the table happy, not to leave an empty table, or to have your hands full.
Jason Fried
on 13 Feb 13The goal is to walk away from the table happy, not to leave an empty table, or to have your hands full.
Des, that is so well put.
Renaud
on 13 Feb 13I can’t agree more. I usually try to “satisfice”, as Herbert Simon put it. Not to “optimize” or “maximize”. And, at work, aiming at a psychological sense of “flow” is far more appealing than running after a pile of cash.
T
on 13 Feb 13I am very pleased to see my exact feelings well-articulated here. I feel the pressures around me to maximize, but they are not internal to me. I do not feel the same way. I too want to better our product and always enjoy the bettering of it for the sake of bettering. We do very well because of it. Could we grow faster? Yes. Could we be more profitable? Yes. I’m like you though. That’s not enjoyable to me. I built this business to make my life a bit more enjoyable and to allow me to work at the pace I want to work at. It’s that pace I hope to keep. Could us growing more slowly than the competition eventually be our downfall? I don’t believe so. I believe we’ll get “ours”. They’ll get theirs. They’ll get more of it if they want it. I believe if we continue to believe in our product, we’ll get ours too.
Robert Pottorff
on 13 Feb 13Jason – in an entirely literal sense, increasing ANYTHING is a form of maximizing which in this case – another word for this is optimizing. So if you are working to increase happiness in your life, you are working toward maximizing happiness.
What you are really arguing is that business should calculate happiness into the margin, and not just profit. The moment you have ceased to gain value (happiness included) for one additional unit of production (marginal value) is the moment you stop… you have maximized productivity in that thing.
Vasu
on 13 Feb 13Great article. Maximization has been the driver of growth in modern times. If you think carefully about it, the sole motivating factor is greed: We want the extremes – biggest/smallest, fastest/slowest, tallest/shortest – the list goes on. We are forever seeking outliers and “pushing the envelope” (incidentally, a very positive term in our age). We’re never satisfied with achieving a milestone because there’s always the next one, further out. Meanwhile we rarely bother about the real costs. “Greedy optimization” strategy, pun intended, maximizes local and short term objectives, often at the expense of longer term and more global objectives.
GeeIWonder
on 13 Feb 13I can’t imagine anything less interesting in business than maximizing shareholder value
Here’s one: maximizing capital reserves with no rhyme or reason.
Anyhow, I’m sorry you feel like an outcast, because everything I read and do suggests maximizing/minimization paradigms in the sense they are being used here were deprecated 15 years ago. It’s trivial to show, for example, that those ‘last drops’ have all kinds of negatives other than just emotive or touchy-feely concepts like ‘taste’.
Sure, some people still don’t get it, but plenty do.
Mark
on 13 Feb 13Are you really saying there have been no days at your firm where you have had to be a bastard and get people to maximise?
I agree that absolute maximisation is an unpleasant thing to put a company through, and if it has ANY positives they can only last for a short time.
You shouldn’t go flat out for maximisation all the time, but your company still needs to keep fit if it is to stay ahead of the pack. And when you are competing for your Olympics – when you absolutely definitely must win, then maximising is ok, even good.
Ahmad Masrahi
on 13 Feb 13Yet this is what public companies are pressured – if not legally required – to do, and what schools teach.
PhilH
on 13 Feb 13Jason, you claim you don’t want to maximize, but then say you do want to improve things. But maximizing/improving is a hill-climbing algorithm.
I think what you mean is that you don’t want to do local optimization; finding the top of this hill. You’re much happier trying to find the highest hill.
I think that’s valid, though it is largely just an indicator that you have staff; you are there to stand on the hill and work out where to go next, and your staff do much of the local optimization. CEOs that do local optimization are as shortsighted as you describe.
Stephen
on 13 Feb 13You’re not alone! Thank you for voicing this. I often fear we’ve grown so competitive on the maximization frontier that we’re discarding our values towards truth, honesty, joy, health, and community in pursuit of it…
ploughy
on 13 Feb 13excellent rant and post, more like this please, having an opinion is important
Anonymous Coward
on 14 Feb 13I loved your expression, “adding somenthing useful to the world!” I cannot see this in almost any business today. The pourpose of making money for shareholders is one of the most threateing aspect of the marketplace, and I struggle to understand the concept of infinite growth…...infinite growth for shareholders only I’m afraid!
Max Lytvyn
on 14 Feb 13Well, most theory driving business actually is not favoring absolute maximization of anything. For example, economic theory generally suggest not squeezing every penny out of a product or a marketing channel, but pushing it only for as long as it’s the most rewarding thing to push (highest marginal return), and switch to something else once diminishing returns bring it to par with other options. Similarly, game theory does not suggest that you should maximize what you take out of a “game” but rather to aim to take as much as you bring in, because if you take more than you bring, the “game” (market, company, relationship) will spit you out in the long run. Working at 99% of productivity is better than not doing much till you reach 100%, releasing a product that is 90% there is better than let the product get obsolete while you are trying to absolutely maximize it’s quality, stability or anything else.
So I think the culture of maximizing is not because of legal requirements or business theory, but other things – maybe because of insecurity and cover-your-ass attitude (if I maximized something, pushed it to the best it can be, no one can tell I did not do a good job there). Or maybe it’s because of this pressure to be the best at something, ingrained from the childhood – just look at how most people think that should be driving in the fast lane on the road – it’s almost pathological.
Glenn Meder
on 14 Feb 13Great post Jason. Simple success. This is summed up well in the video “I miss the mob” https://www.youtube.com/watch?v=GFRLSAPnIG0.
Mark Smith
on 14 Feb 13This is one of my biggest issues with the “startup culture” here in the Silicon Valley. Venture capital seems to lead to a lot of discussion about maximization: active users, retention, engagement, etc etc. Lots of graphs with arrows and big goals that rarely if ever get achieved and silently disappear to be replaced by next week’s set.
It feels like a sickness and an absolutely bad approach to product development. In the consumer space, shouldn’t it be about building something that people want? Something that brings joy and a better life to people?
Instead, we spend time wondering which combination of widgets and functionality will drive the most growth and retention. It’s not “we should do this because it’s a better user experience”, it’s “this A/B tested at 5% retention, ship it”. Depressing.
Chris Rodriguez
on 15 Feb 13I think our love affair with maximization comes from our industrial roots where working harder and faster meant more widgets produced, more dollars in sales and a bigger overall profit. More was always better.
As business evolved away from industrialization we kept those underlying beliefs. Once you have a basic business model the first goal is “How do we do more of what we’re doing?”
We’re now seeing that more and bigger can drive business culture and ethics into unhealthy territory. The result is often uninspired, cheap products and unhappy or, even worse, boring workplaces.
Refinement is (or should be) the new maximization. There’s too much competition and a race to the bottom in price for anything else to work.
Refinement creates more value through developing your craft. It demands creative workers who are inspired, thoughtful, and take time to think about their work.
And who wouldn’t want to work for or buy products from a company who does that?
This discussion is closed.