Short Term Thinking – It Kills Startups Too.


I like talking about tradeoffs, and one thing I frequently say is that public companies too often trade long-term success for short-term earnings. Public companies have quarterly goals to meet and laying the foundation for good solid long-term growth doesn't get you promoted – but several consecutive stellar quarters does. The incentive for managers is to fudge the numbers, not to make difficult choices that require short-term sacrifice for long-term gain.

I have always thought that startups were different and that short-term thinking is less of a concern. If you are trying to build something lasting, why would you think short-term? But the other day while I was telling someone about my first experience launching a business, I realized that startups are filled with short-term thinking and that such thinking can ultimately kill a company.

New companies are often mired in confusion. The procedures and processes that exist at established companies aren't yet in place. New situations arise every day, and no one has the experience to know how to handle them. Decision making relationships aren't clear, and employees are hesitant to use past experience at other jobs as a guide for fear of overstepping their bounds. In such an environment, unique problems will invariably arise.

I don't know how other people respond in their companies, but my tendency was to band-aid things and hope that I could push the problem off into the future. My assumption, which turned out to be erroneous, was that somehow in the future I would have more time and money to evaluate the problem. It's like putting a garbage bag over your broken car window to keep the rain out. You tell yourself you will get it fixed soon, but the next thing you know you have gotten used to it.

The problem with short-term thinking in startups is that the tendency is usually to take the easy way out. So many tradeoffs have to be made that you tend to pick the easy ones (at least I did) because you don't want anything else challenging on your plate. Picking the easy route sets a bad precedent and sends a message to everyone else that it's okay to choose the easy way. The easy way often leads to mediocrity. The next thing you know, your company is on the verge of going under as the bad effects of lots of little decisions have added up to a bad situation.

I don't have any hard and fast answers to this dilemma because business situations happen in a certain context and if you vary that context slightly you could get a totally different answer. However, I will give you three things I learned that you can use to guide your decision making.

1. Rank things by long-term importance instead of urgency.– If something is important in the long-term, it should be important in the short-term. Don't skip maintenance on a key piece of equipment just to improve your cash flow, because buying a new machine will hit your financials much harder. Many urgent things aren't really that urgent, and if they aren't important in the long-term, may not need to be addressed.

2. Explain the pain.– Remember in The Karate Kid how Daniel became frustrated doing all that work around Mr. Miyagi's house? Once he saw the final outcome, he accepted it because he realized how valuable it was. If you explain to your employees that cost cuts, overtime, learning new tools, etc. are temporary pains that will go away and leave them better off, the decisions become easier to swallow.

3. Don't let the short-term become the long-term.– When you do have to make short-term decisions, don't let them creep into the long-term. Asking people to put in some overtime to get caught up is fine, but the tendency is to stick with the overtime instead of hiring new people. When over-time becomes the long-term trend, you get burnout and turnover and that can be dangerous to your business.

It's easy to think that your situation is different. It's easy to justify short-term thinking in your young business and hope that tough problems can be tackled tomorrow instead of today. But take this as a warning that short-sightedness has the same negative effects on a new company as it does on established ones. If you go down that path, you will end up with your own twisted version of the meet-next-quarter-earnings game, and one day, in the long-term, you will realize the high price you have paid for your short-term thinking.

  • I’d say short-term thinking runs rampant with startups. With the barriers to entry from a technology standpoint dropping all the time, startups can create something and launch it extremely quickly. That’s a good and bad thing — but it’s very often short-term thinking.

    And now that we’re very much “post bubble” we’re seeing startups going after quick paydays: again, short-term thinking.

  • The advantage that most start-ups have is that they don’t have to encounter a lot of unneccasary bureaucracy before a new business strategy can be executed. The danger is of course that decisions are made before adequate consideration of potential longer-term implications. As long as if a formal procedure is in place to question new business strategy, start-ups can retain this particular advantage.

  • I agree – short term thinking often causes problems.

    You wrote: “New companies are often mired in confusion. The procedures and processes that exist at established companies aren’t yet in place.”

    It’s funny, but in my experience it’s the other way around. As long as procedures and processes are less well defined, people are more free to step up and just solve the problem.

    As organizationas grow older, more rules and procedures are established as well as a need to do things by the book. ‘

    And THAT can mire a company in confusion.

    One great thing about startups is their agility – something you risk losing to too much long term thinking.

    Maybe a better solution is to be agressively short term – always changing to the current situation.

    eXtreme Programming is a great example of a process that delivers great long term results through constant short term thinking.