One of the hardest tightrope acts for any business is balancing short-term objectives and long-term performance;
In a management study awhile back, a majority of managers said that they would forgo an investment that offered a decent return on capital if it meant missing quarterly earnings expectations.
In another study, more than 80 percent of the executives responding said that they would cut expenditure on R&D and marketing to ensure that they hit quarterly earnings targets-even if they believed that the cuts were destroying value over the long term.
For a variety of reasons, many companies are sacrificing long-term value creation strategies for short-term financial gains. For public companies this can be due to pressure from the Street and for private companies this may be a result from pressure from their VC’s eager to see strong short-term performance to facilitate the sale of the company.
It is “the responsibility of the management team to be clear to their boards and to the capital markets the importance to long-term value creation of both the short-term performance of a business and its underlying health-that is, its ability to sustain and improve performance year after year after year.”