Imagine you are a small public company two days away from your year-end and well below your sales target. You know that even a small miss in your projections will kill your share price and you have a great acquisition lined up that you want to do on a share-for-share basis. If your shares bomb this will almost certainly be the end of it. Just before complete panic sets in, you have the chance to do a big one-off sale, but at a major discount to your current price list.
Now the conundrum – do you do the trade but badly destroy your sales for the next year and mightily piss off your other customers? They will probably lose lots of money because they cannot compete with your one-off player who launches a major advertising campaign offering a giant one-off sale, never to be repeated again.
Now I know all of you will be saying that you would not, of course, sacrifice your integrity for the one-off deal. But interestingly, this is not a fantasy story but something that actually happened. The company in question grasped this low-price deal. The buyer discounted like mad but in so doing, completely changed the price point for the company’s products. And, you guessed it I’m sure, the heavily-discounted sale was the making of the company – opportunism, bringing a change of strategy, and like all really good business decisions, totally by default.
But before you dismiss me as just being flippant, I should say I view the whole area of how opportunism and longer-term strategy fit together, deadly seriously. This is almost where the delta between the entrepreneur and the professional manager meet. The issue becomes particularly poignant when considering whether to stick to your knitting or to chase new markets. The entrepreneur tends to want to move onto the next best thing, the professional manager grinds out the numbers. The entrepreneur spends ahead of revenue, grasps the opportunity. The manager follows the business metrics within the business plan sent to the bank… you get the picture.
Strategy as convenience
In some cases, management also use the word ‘strategic’ to justify taking on a high level of business risk – such as taking on a heavily subsidised deal in a new market, completely outside the company’s core competency – very often because panic has set in due to a dearth of new orders. You can just hear the debate in the management meeting: how this will ‘recover overheads’ and is a real opportunity to expand the company’s products. Most often these decisions end in tears – entering new markets strategically requires real market research, proper allocation of manpower resources and financial and cashflow planning – not just reacting to short-term market conditions. Here, ‘strategy’ is a cloak for poor opportunism.
So being strategic can be described as boring. It is based around running the existing business better and concentrating on the company’s core competencies. Within this, innovation can and must play a key part. Challenging the business model ever so slightly to increase pricing, improving your widget in some cases by pure design or changing your organisation structures to allow more empowerment by your management might not seem strategic, but it can certainly yield great results to the bottom line.
Being strategic is also about deciding where you want your company to be x years from now, in many cases to maximise its exit value. This may involve selling off parts of your business so you can focus on the higher margin, and possibly less competitive, areas of the market, which attract a higher price on sale.
So back to opportunism
For those of us who are football fans, the ‘opportunity’ to sign a real star is often an irresistible urge. The club knows it will bust all their wage guidelines and if they don’t win a trophy, possibly bring the club into receivership a la Leeds United. In fact, pay structure in people businesses and how to attract stars is another classic case where the dichotomy between opportunism and a longer-term, safer strategy can occur. Do you spend the money you would have paid on the star today or invest in finding and developing your own stars of the future? All I can say is I’m glad I’m not in charge of a football club!
But opportunism has been the making of many of our great companies today. Vodafone came out of Ernie Harrison’s big bet on mobile telephony; Man Group, the hedge fund manager, from the stock market crash of 2000 and a reaction to long only funds – both cases of opportunities that were seized upon by management. And Richard Branson, Stelios Haji-Ioannou – opportunists or great strategists? I’ll let you decide on that one.
Michael Jackson is chairman of Elderstreet Investments, the leading technology venture capitalist which he founded in 1990. He is also chairman of Sage, the FTSE-100 accounting software group, which he has been closely involved with for the last 20 years, since its unquoted days. Michael is an entrepreneur and legendary investor in his own right.