I was driving along in the car – yes, I know I start a lot of the blogs in this way but, like most people, driving gives me chance to think!
Someone on Radio 4 was reading an anecdote called ‘The Parable of the Ox.’ At home that night I Googled it to get the full story, and found a couple of fascinating articles, one in the Financial Times and one here from a writer called John Kay.
In the early years of the last century country fairs in the USA used to have a competition – guess the weight of the ox. Kay builds on this original story (I really do recommend it) and compares the country fairs to the modern stock market, with people speculating wildly on the weight of the ox. The smart operators realised what was important wasn’t the actual weight of the ox, but what people thought the weight of the ox was going to be. (Or, to extend the analogy, it isn’t the real value of a share that’s important, it’s what people think the value of the share will eventually be.)
John Kay’s article includes one truly excellent paragraph:
Some, such as old Farmer Buffet, claimed that the results of this process … were divorced from the realities of ox-rearing. He was ignored. True, Farmer Buffet’s beasts did appear healthy and his finances were ever more prosperous. But it was agreed, he was a simple countryman who did not really understand how markets worked.
I’ve written before about my admiration for Warren Buffet – in particular I compared the sale of Instagram (a company which at that time had never made a cent in profits) for $1bn in the same week as Warren Buffet spent $2bn on a power plant that would supply power to homes in California for the foreseeable future. What can you say? Buffet is just a simple countryman, who doesn’t really understand how technology is changing the whole business paradigm.
After all, here are some ‘metrics’ that modern wisdom dictates you absolutely have to know.
How many ‘likes’ do you have on Facebook?
How many Twitter followers do you have?
How many people visited your website yesterday?
Where were they from?
And how long did they spend on the site?
How many Google+ circles are you in?
And the list goes on…
I’m not saying that these new measurements aren’t important. Far from it – I think social media has an increasing part to play in your marketing mix and you ignore it at your peril. But some of the gurus and commentators might just be suffering from ENCS – Emperor’s New Clothes Syndrome.
After all, just pop down
to Tesco to your local independent butcher and try spending Facebook likes, Twitter followers and website visitors. I suspect the man in the stripy apron will be unimpressed.
Net profit is a different matter.
I know this is dreadfully old fashioned but whatever business you’re in you need a steady stream of new clients/customers and you need to sell a product or service profitably to those customers.
I was chatting to one of my Board members the other day: he’s in the financial services industry. You may be aware that they’ve just gone through (yet another) upheaval with the Retail Distribution Review. “RDR doesn’t really change anything, Ed,” he said. “We still need a regular flow of new clients; we still need to give them first class service and providing that service has to be profitable.”
Spot on. So I’ll make no apology for constantly reminding Board members of the importance of their basic KPIs. As Farmer Buffet might have put it, my job is to help you raise a fine, healthy ox – which you can sell for more than the cost of raising it. Not to worry about how many ‘likes’ your ox has on Facebook…
I wrote this on Thursday lunchtime. Later the same day it was announced that Warren Buffet’s company Berkshire Hathaway (along with private equity firm 3G) was paying $28bn to acquire Heinz. Baked beans and tomato ketchup – it doesn’t come much more fundamental than that.