Welcome to the New Year! Avoid Getting Diverted by the Blink of the Moment
In the early part of 2024, business news was filled with ominous forecasts. Sagging demand for electric vehicles was casting doubt on the sector's future. Streaming services like Disney+ were grappling with profitability concerns, sparking concerns about their long-term viability. Generative AI was purported to erase a significant portion of white-collar jobs, according to some reports. All the while, whispers of inverted yield curves and an imminent economic downturn circulated, instilling widespread fear of a recession.
Some business leaders took these headlines to heart, promptly trimming long-term initiatives to respond nimbly to market fluctuations. While this approach may have bolstered near-term performance, it might have proven to be a costly misstep in hindsight.
Fast-forward to the present day, and sales of U.S. electric vehicles are enjoying a robust surge of 12%, having experienced a rebound in the last quarter of 2024. Disney has announced that its streaming service is now consistently earning a profit, achieving this milestone for the second consecutive quarter. The doomsday scenarios surrounding generative AI have turned out to be largely unwarranted, with the technology becoming increasingly essential to our jobs rather than precipitating a mass displacement of workers. And remarkably, the U.S. economy thrived, notching a second year of 20%-plus gains on the S&P 500.
The moral of the story isn't that adversity doesn't strike – it often does. The true lesson lies in not letting the headlines of the moment derail your long-term planning.
In our modern world, it's far too simple to get caught up in reacting to fleeting events. Our brain makeup tends to incline us towards responding to immediate pressures rather than intelligently building for the future. Roughly only 16% of individuals have a truly future-oriented psychological outlook, with the rest operating on a more reactive basis. Despite our evolutionary wiring, however, we all possess the capacity to improve in this regard.
Understanding Momentum and Moments
Now more than ever, people need to master the skill of distinguishing between momentary events and enduring shifts. Transient occurrences dominate headlines and activate our primal fear centers, sensitized by eons of evolution to preserve our safety. But these fleeting events can potentially distract us from what truly matters in the long term. For instance, right now, there is a substantial cold snap in numerous U.S. regions. While it's undoubtedly a moment, global warming is an inescapable reality – that's momentum.
Discerning the difference between moments and momentum helped the most forward-thinking leaders parse last year's headlines. Even though demand for electric vehicles softened temporarily in the first half of 2024, perceptive automotive executives refused to retreat. They recognized that electric vehicles would ultimately constitute a significantly larger share of the auto market 10 years down the line, rather than declining.
Skeptics might argue that the incoming U.S. administration had expressed intentions to axe tax incentives for electric vehicle purchases, but those political machinations didn't change the fact that 12 U.S. states and territories had already set a deadline for banning the sale of cars propelled by internal combustion engines before 2035 [source: EIA].
Automakers that persevered with their electric vehicle plans despite the temporary sales dip reaped significant rewards. General Motors' decision to double down on electric vehicles was curtly validated by a 21% surge in fourth-quarter sales, propelling the company to second place in the race after Tesla. On the contrary, Ford announced midway through 2024 that it would slash the investment budget allocated to electric vehicle development, citing a lack of profitability, effectively ceding the lead in the evolving market to Tesla, General Motors, and other pioneers.
Cash-strapped streaming platforms that capitulated under the weight of a passing moment of softening demand subsequently paid a steep penalty, ceding ground to their more resilient competitors in an increasingly consolidated industry. Despite Disney+ initially demonstrating a deficit, its leadership committed to enhancing its content offerings and recouped its footing, resulting in profitability in the second quarter. To be clear, streaming services may continue to incur occasional quarterly losses or experience fluctuations in subscription numbers, but the fundamental shift away from traditional cable programming and toward on-demand, online viewing is here to stay.
Embrace Macro Trends
It's crucial to steer clear of making hasty predictions regarding the future. Preparing for it doesn't necessitate that you presciently anticipate it. A cursory examination of the world around us reveals numerous macro trends, which developing strategies around shields you from the perils of failing to adapt.
Take, for instance, diversity, equity, and inclusion (DEI). Some experts have proposed that DEI is effectively obsolete, in large part due to political upheavals and conservative investor activism. However, it's important not to lose sight of the momentum underneath these superficial upheavals. Are you convinced that corporate workforces will remain heterogeneous in 10 years or less? Companies that strive to assuage investor concerns by dissociating themselves from the DEI label will inevitably be at a competitive disadvantage as demographic shifts push society towards becoming increasingly diverse. Echoing the immortal words of Don Draper, "We're not going back to the Mad Men days."
Emulate Wise Investors
So, what's the key to balancing the Now and the Next while planning for the future? Learn from shrewd investors. Adopt a portfolio strategy, dedicating resources to both immediate and long-term priorities. Allocate more of your operating expenses towards the former, and more of your capital expenses towards the latter. This approach ensures that you're neither starving the foundations of your business with short-term stability, nor jeopardizing long-term growth by betting too heavily on an uncertain future.
Tesla serves as a prime example of this strategy in practice. The company continues to invest generously in battery technology and production, while concurrently tempering its production and pricing strategy to address softening demand. Although it fell short of its sales growth expectations in a given quarter, its focus on the long-term vision – vulnerable to the fluctuations of the moment – prevailed.
Another takeaway from wise investors is to remain calm during volatile times. In 2020, Fidelity Investments conducted research examining the performance of their best-performing accounts. Strikingly, the top performers happened to be those owned by deceased individuals. This apparent anomaly comes down to the fact that their owners were shielded from short-term plunges – akin to avoiding the distractions of a news cycle – resulting in steadier investment strategies and, consequently, higher overall gains. Companies should seek to emulate this strategy, anchoring their long-term plan to overcome temporary challenges instead of reacting impulsively to negative headlines.
The cyclical nature of periods of volatility often means that they don't persist for an extended period. Major recessions, for instance, are statistically less frequent and longer-lasting than fear-mongering would have you believe. The average duration of U.S. recessions since World War II is a mere 10 months [source: NBER]. The last recession, which extended to a painfully modest two months, is a mere blink in the face of long-term planning concerns.
Filter Out the Noise
Those who aspire to assume a future-focused mindset would be wise to adopt a systematic approach to deciphering the competing signals of the present from the underlying trends of the future. Commit to evaluating potential risks and opportunities through the lens of two categories: Now and Next. Short-term challenges that don't derail our long-term strategy should not detract our attention from it – we ought to allocate resources to mitigate them as needed, but without abandoning the bigger picture. Paradoxically, risks and opportunities that necessitate a reevaluation of our strategic course require a thorough scrutiny to ensure they've already been integrated into our policies or, if not, warranted priority.
Leaders, in theory, are responsible for prioritizing the future vision for their stakeholders and must constantly communicate this vision clearly, clearing a path for them to see the merits of enduring through less favorable periods. Recognizing that there are always hurdles to overcome, the key is to dedicate time to identifying the currents that underpin those moments of uncertainty, navigating through them with precision and tenacity to emerge collectively stronger.
While there are undoubtedly myriad challenges and uncertainties on the horizon, from potential trade wars to escalating global instability, it's essential to remain vigilant in our efforts to discern the momentary events that may yet prove to be overblown, in favor of focusing our our attention on those macro trends that demand our attention and our strategic acumen for deciphering the long-term trajectory of the organizations we lead.
- In the realm of strategic decision-making, future-focused leaders aim to distinguish between the fleeting 'moments' and the enduring 'momentum' to avoid getting distracted by temporary events and maintain focus on the long-term.
- Navigating short-term challenges without derailing the long-term business strategy requires a balanced approach, learning from investors who allocate resources to both immediate and long-term priorities.
- Leaders must emulate wise investors by adopting a portfolio strategy and focusing on macro trends, like diversity, equity, and inclusion (DEI), which are critical to the long-term success of their organizations.
- To build resilience through strategy, leaders should avoid being swayed by momentary headlines and instead filter out noise to decipher competing signals, focusing on the Now and the Next, and communicating a clear future vision to stakeholders.
- By learning to distinguish moments from momentum, business leaders can avoid costly missteps and stay focused on their long-term plans, even during periods of economic or market uncertainty.
