Operations Payoff

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Should You Get A Return On Effort?

I was talking to the owner of a rapidly growing company who was concerned because despite working hard on growing the company, profits were falling short of their hopes. The question of the moment was, “Shouldn’t we get a return on our effort?” The short answer is yes, but the longer answer is, it depends on how you define “return.”

Amazon HQA recent Wall Street Journal article (“Amazon’s River of Profit” May 1, 2017, p B9), noted that Amazon just achieved eight quarters in a row of profitability. Amazon was founded in 1994! It started as an online bookstore, and is now one of the largest Internet retailers in the world, based on total sales and market capitalization. It looks more like a high-tech company than a retailer.

I remember back in the 1990s when investment analysts were questioning the fact that Amazon wasn’t turning a profit. They seemed very concerned that this start-up was potentially years away from profitability and they naturally questioned if it was a “good investment.” Well, if we had all invested in Amazon stock at that time, we would all be millionaires.

Jeff Bezos clearly defined “return” a bit differently than the analysts. His initial goal was growth and market share. Then he moved toward innovation, using his company’s distribution strength to add additional products. Recently, they added cloud-based services, Amazon Web Services. In the last two years, the stock has more than doubled and is well on its way to $1,000 per share.

Amazon is very innovative and continues to focus on growth, but is now also earning money. Their “return” is market capitalization driven by innovation, growth and profitability. As they’ve matured, their overall strategy has shifted. Bezos was a genius of strategy and kept his focus, not buckling to the analyst’s comments.

What is your strategy? Does it define your return? Is your return on effort what you hoped it would be?

© 2017 – Rick Pay – All Rights Reserved

 


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