2015 Chapter 8:

Reacting to Now vs Planning for the Future

They make some great whiskeys (if you can find the original 21 year, you’re in for a treat.)

They are the last vertically integrated distiller—as in, they do everything in-house.

We like to drink. Yeah. There you go.

Are our competitors even doing the right thing?

Do the features even matter?

Are the standards themselves killing us?

None of these things were new.

None of them had the most features or capabilities.

If you know you have a potentially company-destroying bottleneck, having a backup plan is the first thing you should be doing to ensure your future.

For companies that go against the grain and think long-term, it’s important to ask why they do it—and how they can continue to get away with it.

Vision: something that looks forward past the state of today and all the demands of the now, and sets some guideposts for your company in the future. Believe in: you need to believe it, first. You can’t use a Dilbertoid Random Vision Statement Generator to do this one. Compelling: Why would anyone else find value in your own vision? It has to matter to your customers as well.

Except your dealers don’t like the way your product roadmap is looking, so they start pushing something else. Except you have one gorilla client who dictates exactly what you do, even if you don’t completely agree. Except you’ve signed a multi-year deal with a standards body that promised you the world…but only delivered a neverending nightmare of revisions. Except your single-source supplier just went belly-up.

Except your ego got the better of you, and you decided to “really show them now…” which led to an bottomless pit of development cost for a product that may never appear. Except you decided you really, really needed that Porsche 917 and the house on the hill, and suddenly your Cash(free) = 0. Except you hired the wrong people and checked out of the day-to-day workings too fast, and the business is rapidly unraveling…without you noticing.

When I was recently on vacation, I had an “engineering moment.”Here’s how it went. A friend (Jetse) and I went up to Campbeltown, Scotland, to visit the Springbank distillery. This may be an obscure distillery even to ardent Scotch aficionados, since it is part of the smallest recognized whisky distilling region in Scotland.We went there for three reasons:During the Springbank tour, they took us through the malting barn, past the oven, then on to the grist mill, which was a curiously Rube Goldberg-looking contraption with multiple leather belts attached to cast iron wheels, with axles all terminating in a fully-certified-for-steampunk cast iron box with a rococo manufacturers’ badge stuck prominently on front.“This grist mill grinds all of the grain for our whisky,” the guide told is. “And, funny story, this is the same grist mill we’ve been using for 75 years. The company made them so well, they never break. They’re so good, the company went out of business…they never had any service revenue.”Jetse and I shared a horrified look. Jetse is an engineer as well, working on ship propulsion systems.“Uhhh….” I said, then trailed off. Best to leave them to it.Jetse, being Dutch, is more direct. “Errr,” Jetse said to the guide. “What happens when itbreak?”“But they don’t break,” the guide said, smiling with all the confidence of someone who knows nothing about complex mechanical things.“I understand that’s the story they give you,” Jetse said, again being Dutch. “But when itbreak, and itbreak, what do you do then?”“Uh…well…” the guide said, clearly not used to being challenged.“Wouldn’t it be a good idea to find a spare? Or have someone reverse-engineer this one and have another one 3D-printed?”“I don’t know anything about that,” the guide said, looking truly uncomfortable for the first time.Jetse looked at me, his eyes bugging out in incredulity. I knew at that moment exactly what he was thinking:“Let’s keep going,” I told Jetse, nodding at the corridor leading to the rest of the tour.Jetse shook his head, but came along. The rest of the tour went uneventfully, and we had (and bought) some very good Scotch.But later that evening, over a plate of World Famous Mach Dunes Haggis Nachos (no, youcannot make this stuff up), Jetse went back to that moment.“Those guys,” Jetse said, shaking his head.“What guys?”“The Springbank distillery guys. They’re betting the company on a 75-year-old device with no support. When it breaks, they’re screwed.”“It’s a different world,” I told Jetse. Campbeltown was, figuratively, a million light-years away from Jetse’s shipyards and Schiit…just a tiny town way out on a finger of land in Scotland, with a handful of crazy distillers carrying on very, very old traditions.“Oh, don’t give me this ‘we can all sing songs and get along’,” Jetse said. “I saw the look on your face. You were as horrified as I was.”I nodded. “Yeah. I guess we both had an engineering moment.”“Engineering moment.” Jetse laughed. “No, just common sense. Would you run Schiit like that?”“With one point of failure and no backup? Nope.”Jetse nodded. “You always have to have a secondary plan. If that grist mill goes out, they may lose months—or a year—of production. What happens then?”“Then their market gets really interesting in 12 years or so.” Because they would have a hard enough time judging demand and pricing for their product, over the dozen or so years it would take to mature it. A busted grist mill might not affect their immediate results, but depending on what the future looked like, it could be a make-or-break thing.Jetse sighed. “That’s the Chinese definition of interesting. No, thank you.”The above anecdote isn’t intended to bash the good folks at Springbank—it’s really just to illustrate how the “now” can come to eclipse everything in business. In Springbank’s case, the “now” is that their grist millworking, and there’s no reason to think it might break soon. Plus, they have tons of other “nows” to deal with, whether it’s the latest barley crop, or a supply chain issue with bottles or barrels, or dealing with the normal logistics and financial concerns of running an ongoing business…trying to guess what their market might be wanting to buy, 12-21 years in the future.In that case, planning for the future is especially tough. With the pace of change, would you want to bet on, say, whether you’re going to be driving an electric car in 12 years…or if you’re going to be driving at all in 6? Or whether NASA will have a functioning reactionless drive (or even warp drive) in 21 years? Or whether or not Google’s life extension research will start paying dividends in a decade or two? Or a thousand other smaller things that are changing the world, right now?Yes, I know, this is all crazy talk. But do some Googling, and you’ll see that none of the above is out of the realm of possibility. And then reflect back on this…less than 20 years ago, Google simplyWith the future in flux, it’s easy to keep your head down and focus on the “now.” But that’s not the only pressure keeping our focus short-term. Because, in today’s corporate world, there’s virtually no downside to reacting to the present, and no upside to planning for the future.Read that again:CEOs get rewarded on how well the company did that year—or even every quarter. Deliver a couple of quarters of bad results in chasing future fortunes, and you may not be there long enough to see that future unfold.And it continues down the line. The C-suite may not get the attention they need at their banks if they don’t deliver consistent results. Or they may be so tied in with the bank that they can’t exist without them at all. The financial pressure to perform——is huge.Worse, companies are endlessly compared to the competition. What are they doing relative to Gorblesnort Inc? How do they stack up features-wise to the new Arglebargle XYZ? Are they fully buzzword-compliant to the latest Megacrapdoodle standard?Oh, they aren’t? Well, what’s wrong, we’re falling behind!Yep. All acting in the. Rather than asking:Bottom line, however you look at it, there’s almost no reason to plan for the future. And plenty of things that keep you in the. A company has to actively resist the extreme pressure to react to the—in fact, you can make a case that it has to act against its very nature—in order to think long-term and plan for bigger things.I suspect that most of the companies who successfully resist the “call of the now” are smaller companies working in niche industries. You’ll be able to find them by looking at the companies who are always there, at or near the top of some small industry, year after year, decade after decade. And most of these companies continue to prosper without changing much—resisting the fads and fashions of the moment is their most important calling.But some biggies operate a bit differently than the typical “grab all you can as soon as you can” companies out there. Let’s look at 3 of them.Quick disclaimer: these are my personal opinions. I could be very wrong. Lots of you probably think I’m very wrong. That’s cool.I use this title for Tesla and SpaceX and SolarCity and all the other stuff Elon is up to. He’s the poster child for planning for the future, set on upending industries and changing the fate of humankind.Grandiose? Yes. Sustainable? We’ll see. But when one dude can say, “Yeah, I’ll answer your questions about my home batteries soon, but I’m a little busy delivering stuff to the space station, and, you know, making rockets land on their tails, like all fans of 1950s sci-fi know they should, and, you know, planning for Mars and stuff like that,” it’s a bit surreal.And it’s clear he hasinHe’s blown off investors, deflected questions about current revenue and solvency, and done what he’s needed to do to keep the innovations coming.Again, whether or not the empire grows or collapses (or is the right thing to do) is something yet to be determined. But he’s not worrying about next quarter—because he has a much bigger vision.Quick. What makes up almost 90% of Google’s revenue? Guess what. It’s advertising. Yes. Google is an advertising company. At the same time, they’re playing with self-driving cars and inexpensive smartphones and life extension and artificial intelligence and their CEO is involved in an asteroid mining startup and probably a dozen other things I don’t remember off the top of my head.In this case, it looks like Google is actively looking to the future with a “throw a bunch of stuff on the wall and see what sticks.” They’ve been criticized by investors (not exactly a long-term thinking bunch, ha) for excessive spending on research, and their approach can seem scattershot, but……if even one of their crazy initiatives pays off, hell, Apple’s almost trillion-dollar valuation is gonna seem like chump change.And, that, I suspect, is why they do it: because they have a stable base to build from. The challenge is finding the next exponential leap.If you’re expecting me to put in a good word about Apple’s forests and sustainability initiatives, sure, yeah, okay, but let’s see if those are more than point programs reacting to the disaster du jour.What I’m really speaking about is Apple’s (now-fading) ability to put aside the present and look around corners, as well as their (also now-fading) ability to say, “No, it doesn’t need that…not until it’s right.”The iPod was the beginning. I’ve gone on about what a breakthrough the iPhone was, and how it broke the model. I was lukewarm on the iPad, but Apple had enough vision and sense to turn it into a new computing phenomenon. I’m lukewarm on the Watch, as well, but we’ll see how that turns out…it may be much more successful than I expect. The important thing to note is that:Go back and read that again: these were all tandBut because Apple was more focused on their own vision, they were able to resist adding long lists of stuff that would slow the product down, or make it buggy, or half-baked (er, um, Maps, and yeah, well, there are some problems here).Why can Apple do this? In the past, a singular vision. Today, if it can keep it up, it’s due to having the comfort of an amazing cash hoard. They have plenty of time to sit back, observe, and get things right. They don’t need to make the next quarter.But they could also be looking forward a bit more…we’ll see how that goes.Yeah, I know, some of you are tired reading about Scotch or Elon’s Martian dreams, but there’s are a couple of points I wanted to highlight in those above examples before I moved on to the practical stuff.Because…no matter how much I try to distill this to a set of rules, learning to plan for the future (or decide to act for now) isn’t cut and dried. It will be different for every company.And with that, let’s break the rules…and create a rule.Huh? Wut?Okay. Read it like this:Does that help? I hope so. Because if your company doesn’t have any free cash, you should absolutely be thinking in the now. The now determines the next sale you make, the next prospect you serve, the next customer you make—and keep—happy. In this case, making sales, and keeping customers thrilled, right now,If you’re a startup company, your futureyour now. Plan for grandiose dreams of world conquest later. Concentrate fully on selling and making customers happy. Period.Not all cash is created equal. Note the Cash(free). This means cash you put in yourself, or created through the normal operations of the company. Free cash does not include cash you got from investors, from crowdfunders, or from the bank. This kind of cash is Cash(encumbered). It has expectations attached to it. Investors expect to have an opinion…or even to drive the bus. Crowdfunders need to be actively communicated with…and may sway your course with their own opinions. Banks want their percentage, or may want it all back, after a time. The value of encumbered cash might be much less than its face value to you…or, in other words: Real Value (Cash(encumbered)) << Face Value.Note that two of the three examples of companies looking to the future outlined above have big hoards of cash. The third has proven access to cash, and an overriding vision.Which brings us to the second rule:Okay, to take this out of the equation realm, let’s say,Once you’ve gotten past the hand-to-mouth startup years and have plenty of Cash(free) in the bank, it’s time to decide what you stand for, and why it matters. No company will be truly successful in simply bending to the consensus opinion of the now, or shifting with the current sands.As an example, we once worked with Memorex as their digital agency of record. They were playing with a whole slew of new products (thumb drives, music players, etc—remember, this was 10+ years ago). They asked for our opinion on their shiny new line.In a then-uncharacteristic honest answer, I told them, “Well, basically, these are copies of other stuff from industry leaders. Some are fancier, some are cheaper, but they’re the same basic thing.”“And?” the VP of Marketing asked, looking a little nonplussed.“And it depends on how far you want to go. If you look forward a few years, you’ll see that a lot of this stuff is just part of a shift to an overall integrated home entertainment streaming/repository system that is more computer-based than individual component-based.”“And this helps us now, how?” their VP of Marketing asked.“It helps by knowing where things are going, so these products can be tweaked to fit more into that future—and bring you ahead of the competition.”“Tweaked how?”“Like this thumb drive,” I said. “Why isn’t it also a music player? Why not have a WiFi chip in it so you can stream to it on a home network.”Marketing VP shifted in his seat, glancing nervously at his CEO. “That’s a little, uh, advanced, for us.”And that was that. In the end, Memorex got sold to Imation for chump change, and continues to limp along.So,Deconstruct that:When you have a compelling vision you believe in, you’re head and shoulders above all the other companies living for the now, waiting breathlessly for next month’s results, and in general only serving as the factory floor for a hastily-constructed rendition of this year’s buzzword-compliant device.What’s Schiit’s compelling vision? How about this:And yeah, I know, I said this can’t really be broken down to a list of rules. However, rules are a signpost, so here’s another:Or, in English,Have free cash? Have a compelling vision? That’s great!You get it. When you get yourself into situations where you lose control of your own destiny, you’re putting yourself in danger.That dealer network may look tempting now, when you can stuff it with product to claim big sales numbers (but hey, what about getting paid, huh). That gorilla client may look like a wonderful path to stability, but what happens when the current management is ousted in a merger. That standard you just subscribed to might promise never-ending upgrade revenue from your customers as the standards change…but what about your own upkeep, and what about when the customers decide to opt out. That one supplier may seem like the only company that can do what you need them to…but what happens when they get a bigger and more demanding customer, and your stuff slips?But there’s more. Those are external entanglements. There are also plenty of internal ones, too. Like:Bottom line: the more you can avoid entanglements (internal or external), the more control you have over your future, and the greater the chance you have of seeing your vision through.Want another rule? Sure:Or,On the other hand, having a vision and avoiding entanglements isn’t all there is to it. You need to start playing as soon as Cash(free) and time permit. Experiment. Mix things up. Play “What if?” Feel free to surprise yourself with new ideas.Or yes, in other words, kinda like Google.Your budget may not be as big as theirs, but the principle is the same…Playing is part of planning for the future. Because no matter how grand your vision, no matter how much cash you have, no matter how many people support your company,For Yahoo, it was Google. For Nokia, it was Apple. For SpaceX, it may be new competitors on the rocket front, or entirely new and crazy paradigm-breaking things like the reactionless drive.For you, what is it? What’s next? Where is the market going?These questions you can’t answer with focus groups and crowdthink. These questions are answered by your play and the intersection of new discoveries, proven vision, and ability to look ahead.But start playing, as soon as you can. If Mike hadn’t played with Modi, we wouldn’t have a $99 DAC and a $99 amp…and we’d be a very different company today.And a final rule, to bring this full circle:Or,Back to the guys at Springbank. They have no Plan B for when their grist mill breaks. They’re hoping someone can fix it, and get it working again in a short enough time frame not to interrupt their production.Remember…if you’re panicking, in the moment, in the, you aren’t planning for the future. For really important stuff like that—potentially company-destroying stuff—have your Plan B ready.And…that’s about it.Except the unwritten rule I started with: the fact that you can’t break everything down into rules. Every company will be different. And the future is not always the future, when your beholden to others who control your money. And your vision may be very simple (make stuff cheaper) or very complex (make humanity a multi-planet species). And you may have some entanglements that are unavoidable. And not enough time to play. And not enough forethought to see every Plan B.But you know what? I expect that companies that plan for the future do much, much better than those that simply react to the present.Happy futuring!