A few weeks ago, along with several other agency owners from around the country, I participated in a forum at the American Association of Advertising Agencies in Manhattan. During our discussions, someone mentioned the case of an advertising agency that had recently been purchased by an investment consortium. It seems that, following the acquisition, agency management was informed that they were projected to grow the agency’s profits by 8% over the coming year.
Now, any agency that I know of would be tickled to experience that kind of growth. Ours, however, is a service business that relies on building long-term relationships. We have no control over what our clients decide to budget for marketing, nor can we predict what new business opportunities will arise and be won in the coming year. Generating an 8% increase in a moribund economy seems like a wildly optimistic proposition.
When the agency leadership asked the new owners what the source of that 8% projection might be, they were told that this was the number they needed to use to attract investors, and now the agency was expected to deliver on their promise. They had painted a picture of prosperous returns and, like Oscar Wilde’s fictional Gray, they expected reality to conform to the portrait.
For my part, this kind of thinking isn’t too far removed from the bank president who recently testified before Congress concerning the mortgage crisis. He freely admitted that he and his fellows might have overlooked the possibility that property values didn’t always have to go up.
In America we have a deeply rooted sense that things should always be growing, expanding, and getting bigger and better. There are hiccups to be expected along the way, of course, but our manifest destiny is to keep moving onward and upward. This derives in part from our history of success in rising from colonial stepchild to superpower in just two centuries. Mostly, however, it is the result of being the only robust and fully functioning economy in the years following World War II. Over the ensuing half-century we established ourselves as the world’s leading nation and primary market, consuming a disproportionate amount of the planet’s resources.
In the long term, this positive attitude is a good thing. Sadly, we seem to be unable to sustain our expectations beyond the next quarter. People didn’t invest in building the railroads because they expected to see a return on their investment before the tracks were laid. Today we expect to see big, consistent returns regardless of the condition of the economy. How else could so many intelligent people be taken in by Bernie Madoff?
The world has changed. There is more competition for resources, and the excesses we enjoyed in the past are no longer tenable. We need to reinvent ourselves as a nation, and establish a new position in the emerging world economy. This isn’t going to happen simply because we want it too, or because assume it to be our birthright. Nor will it come from continuing to borrow against the future so that we can have what we want today but can’t afford – not as individuals, and not as a country. If we learned anything from the last two years it should be that growth cannot be assumed… that the future is best assured by living within your means today, and Investing for value rather than quick returns.
It’s time to tighten our belts; the question is whether or not we still have what it takes to do it. What do you think?