Vision Statements and Visionary Management

A vision statement is management’s most concise articulation of where a company can go through the execution of its mission. Vision statements are about the future of the organization, and the company's ability to change the world.

In contrast to mission statements, which follow a determinate philosophy, vision statements are unbounded. Meaning they can extend beyond the following:

• Analysis of current economic and market forces at play.
• The limits imposed on a business by its present use of capital and people.
• The current capabilities of management.

Where vision statements fall short:

Have a vision too narrow and miss opportunity. Stretch too far and fail at relevancy.

Perhaps the biggest difference in mission statements and vision statements is that the former is typically driven by current capabilities, the latter is more appropriately (and in reality) constrained by management capacity.

Capacity is determined by owners of the firm or its managers, and employees in rare instances where they are empowered.

Juxtapose the following wise quotes:

“We suffer more often in imagination that in reality.”
‍
— Seneca the Younger

“Most people overestimate what they can do in one year and underestimate what they can do in ten years.”
‍
– Bill Gates

Wallstreet is notoriously short-term oriented. Too many investors are focused on quarterly results with no view to the long term.  A major share of companies in the S&P 500 index won’t be around in 10 years, let alone profitable. The effect reaches management and the end result for the company is mediocracy.

The history of Starbucks illustrates this point well. In the late 2000s the company was no longer managed by its primary founder, Howard Shultz. Management of the company lost sight of the vision for what was possible and growth started to falter. The company needed to refresh its vision and mission statements.

While the company was growing rapidly, it was failing to execute on otherwise imperceptible levels of quality that built the business. The founder, Howard, was not serving as the CEO of the company but as executive chairman.

He recognized a need to reinvigorate the company and solidify guiding principles resulting in his ascendancy back into the role. Arguably, his chief accomplishment was refreshing the mission and solidifying the vision for the firm. The results were illustrated by the growth of the firm, its market dominance, and its market value.

The best vision statements:

The best vision statements have (A) aspirational components and (B) present realistic ranges of possibility for where the firm can be as a result of growth over time. When fully executed, the vision becomes the greatest expression of management capabilities.

Visions statements are clear observations about the possibilities of the determinate future. And the results can be magnified materially.

“Most initiatives take 5 – 7 years to pan out for shareholders and the company”

– Jeff Bezos 2000

Warren Buffett frequently states that his favorite holding period is forever. The results of that vision for an investee company show that good companies held for long periods produce outsized investment results. And that as a result of that consistent behavior, Berkshire could be the buyer of choice for closely held businesses.

Examples of companies with long-lived visions go on and on.

Clearly, the best vision statements require a capacity for very long-term thinking and the ability to endure any issues that occur in a short period of time. The observation of this author is that thinking and acting long-term is the primary differentiator between a poor and great vision.

Finance and vision statements:

Everyone in the world is subject to the same laws of finance. Just as gravity pulls on everyone, compounding and inflation apply to all companies.

On balance, most managers have great sales skills but not necessarily financial acumen. Biology plays a role, aggressive, tall, outspoken, and domineering personalities regularly find their way into management positions.

Extending the biology analogy further, the disproportionate share of economic results, in reality, go to the species of firms that have the ability to reinvest profits for extended periods of time at high rates of return. In doing so they totally dominate their niche and become a monopoly. They also tend to produce something new that does not exist. Call this the benefit of scale or natural monopoly. The result is the same, something new that did not exist before then holds a dominant market position in a new market.

The best visionaries can see the future in decades rather than fiscal quarters. They can understand the financial structure required to get there.

To pull off disproportionate objectives, management must be able to delay gratification for material extended periods of time.

And, just like evolution, even long-sighted visions of the future don’t always work out spectacularly. But, a common theme among the disproportionately successful in business is echoed by those in other fields:

‘Most of us are very lucky, you have to love what you do to carry through failures, you do what you love and be lucky sometimes the that efforts turn out to be important wins’

- Rainer Weiss – Nobel Laureate in physics, 2017

Vision statements and (future) investment risk:

When a business invests, it is making a judgement about the future. That decision is typically rooted in perceived opportunity cost and as suggested earlier, generally short sighted.

Risk – as defined by David Dodd, Benjamin Graham, and Buffett is the permanent loss of capital. Much of capitalism is about banding together with a motley crew, fording the mote, and storming the other guy's castle.

Management regularly misunderstands the risk-reward paradigm as a result of a nearsighted vision.

What will happen to the business if it doesn’t invest some portion of its profits to stay competitive and keep invaders out? The answer is that the economic engine of the business sputters and dies or is unceremoniously steamrolled by competition.

The most successful companies have leaders that create visions that exist as certainties of management capacity or eventualities tied to the economics of what the company does. Ideal visions for a company are not just puffy sayings about changing the world. Great vision statements share a real possibility for the future.