The hardest to learn was the least complicated
“The purpose of a business is to maximize shareholder value.”
Yup, I heard that in business school, too. I went to the University of Chicago, where the most lauded economist got a Nobel prize for his greed-is-good theories. We’ve progressed, but corporate finance is firmly rooted in orthodox definitions of “shareholders” as people who hold stock certificates.
In the language of Instagram, it’s scarcity thinking. There is not enough in the world. Take yours and let everyone else fend for themselves. Coffee is for closers.
So when I joined a seed-stage business event at Booth last week and heard this phrase…yikes. It came out of the mouth of a recent MBA who’s a mid-level manager at a company I like, whose product I use, whose stock I own. It made me take a beat.
When mid-level business leaders say things like this, it means the company has drifted to conventional thinking. And when that happens, they start to hire people for their pedigrees instead of their ideas. That stifles the innovation that got the company here in the first place. Conventional thinking finds unfair advantages in things like lawsuits, complex financial instruments, and more work for less pay, instead of building great products and services that bring joy to their customers and audiences.
(I’m not saying don’t hire MBAs…just look for ones who have a healthy skepticism of the Kool-Aid.)
That panel reinforced why I love working with self-funded founders. Because you ARE the shareholders. “Maximizing shareholder value” means, frankly, whatever the hell you want. And many of you consider your partners, employees, and customers to be shareholders, too.
As Chief Shareholder, you can run your business in a way that brings you joy and supports your values. It means paying yourself, of course, and being smart about taxes. But you can spend the profits as you see fit. If you want to pay above market salaries, offer generous benefits, add new business partners — that’s completely your call.
Here’s conventional scarcity advice I’ve heard in the last week from prospective clients:
You’re paying too much to your team!
Your consultants are way too expensive!
You’re making other founders look bad!
You’re being way too generous!
You need to take investor money and grow faster!
You need to focus on valuation!
You need to hire this title!
There’s a lot of prescriptive wisdom out there. If something is working in your business, and you are operating ethically, don’t change because somebody with letters after their name packages up the conventional wisdom. Before you take advice, make sure it applies to YOUR situation, not a generic situation.
Conventional advice on its own will not help you find your unfair advantage. That’s what you’re looking for — something that you do, that other companies, even bigger ones, haven’t figured out or simply can’t do. Small business owners must always have an unfair advantage.
If you don’t believe the world is Naked and Afraid, Capitalist Edition, please make sure you and everyone around your business understands what “shareholder” means and how you involve and treat them.