Consider this post a corollary, a sequel or at least a fairly close relative to last week’s dissertation.
However, instead of focusing on walls, fences and other so-called “barriers to entry,” this week’s post puts the spotlight on a different business contrivance that gives a similar false sense of security: The Trend Line.
What sparked this all was a discussion I had with a colleague a few weeks ago about taking on a new partner and taking a big leap in a new direction, to which he made this point:
“Business has been good. We’re making about $2 million dollars net profit. We’re growing steadily every year and the trend line shows that we can grow this to about $6 million in four, five years. Why should I take a risk, give up a half my profit when things are going so well?”
Here’s what I said:
“Your trend line is a lie. It’s a pacifier. It’s an optical illusion. It’s like those legal disclaimers on financial offerings, the ones that go: ‘The information regarding the historical development of the funds is provided for informational purposes only. Historical data does not guarantee future performance.’ The past is irrelevant and the future is a prayer.”
Then I calmed down, and he called off the intervention.
Data points plotted on a graph and connected in a line tell a great story of how you got to where you are. But in no way can they tell you where you are going.
Because the competition doesn’t listen to your trend line.
Consumers don’t listen to your trend line.
In fact, even trends don’t
listen to your trend line; they
disrupt, even destroy, them.
I just read an article about Moishes, a legendary steak house in Montreal that just celebrated its 75th anniversary. Rock solid, right? Invulnerable! Sure…until some new study comes out showing the beef is toxic…or perhaps vegetarianism becomes a rampant rage, or…
Okay, an improbable scenario, but life is full of ‘em. I lived through countless seismic shifts, and continue to on a daily basis.
At Airborne Mobile in the early 2000s, we were pioneers in content delivered to cellphones. After a major “hockey stick” jump, our revenue trend line was a gorgeous 25-degree angle up. Bliss!
And then, Apple released the iPhone.
Almost immediately, our sales plummeted. Our trend line, lemming-like, took a suicidal leap off a cliff, never to fully recover.
Now no company plans for its revenue trend line hitting a wall and plummeting like an anvil in a Road Runner cartoon. Imagine trying to present something like this before a board:
“Sales will increase 7.3% per month until July, upon which it will take a death spiral swan dive to the depths of hell because of a new product released by one of our competitors, we just don’t know which one.”
Yet it happens, and happens often.
A case where the whole is less than the sum of its parts, a trend line is way less relevant than the individual data points that make it up. Being able to understand success—or failure—and react quickly to either will result in further positive data points. This will result in a nice historical memento to look back upon, but is in no means a tool to use to predict the future.
At Just For Laughs, we trend ticket sales, and project pathways to profitability. But this fragile line can be ravaged by the devastating effect of a bad review and the ensuing word of mouth (or, in a better-case scenario, be sent stratospheric if the show becomes a mega hit). But we live by the moment. No matter what the performers, the director, or the show itself did in the past has no bearing. Everything depends on the now.
So going back to my colleague, I urged him to take the shot. Who knows, he may not have to give up 50% of his $2 million…or even his $6 million; he may be sharing $47.6 million. Or he may go bankrupt, either with the new partner, or by retaining his current status quo.
As I said, who knows?
What I do know with certainty though is that we can’t predict the future.
If we did, we wouldn’t go to work; we’d buy a winning lottery ticket.
But the trend line can’t predict the future either.
Depending on it to do so is as sound a business strategy as playing the lotto.
P.S. After all that heavy-handed craziness, enjoy this: