Let’s continue talking about some personal terms and memes. Today’s is called “The Theme Park Effect”. (I don’t really call it that but I don’t want to name-drop any specific companies.) And the concept is as follows; if you can slowly lower the OPEX, even if it impacts quality, and it doesn’t really effect your revenue, then you are going to be incentivized to continue to do so (because it will improve your margins). From the “theme park” anecdote, think of it like this. Let’s say you run a theme park. And let’s say you cut labor costs by 20%, and the impact is the bathrooms only get cleaned every 90 minutes instead of every 30. A slight noticeable drop in quality, and yet your year-over-year attendance continues to rise. If you are measuring your theme park success as your net profit on your P&L, this is a win!

Now obviously this is dangerous from the perspective of, this is short-term thinking. You are sacrificing long-term business health with the lure of short-term margin improvements. Eventually, the drop in quality will feed back and you will lose customers, and thus revenue. But if all you are worried about is short-term P&L numbers for your stock price (or your performance bonus), then it doesn’t matter to you. You just cash out and leave when the number finally start to drop.

There’s a cautionary saying that goes with this: “Don’t let short-term employees make long-term decisions.” And this anecdote above is exactly why. Your short-term employees will make decisions that impact the organization years in the future, but they don’t care because it won’t affect them.

For publicly-traded companies this is obviously a really hard problem to address. The only solutions I can think of that I’ve heard of are being an employee-owned company, or being not publicly traded and instead family-owned. I’d be fascinated to hear from anyone that has any other ideas, or knows of any approaches that have been published or evangelized.