This year Atteline turned seven, and in that time, one of the greatest lessons leadership has taught me is that one of the most critical skills a leader can develop is the ability to make difficult decisions, with the long-term health of the business in mind. Looking back, I appreciate the ways in which the hardest decisions we made in our very first two years of operation helped get us to where we are today, and the ones we make today are only ever in the name of good company health twenty years from now. In the fast-paced, ever-evolving, and opportunity-filled world of business, there can be endless temptations to focus solely on short-term gains or eliminating short-term pain, but we must always remember that the success of a company relies on the ability to make decisions that will ultimately allow them to adapt, grow and thrive over time.
This perspective is underscored by many of the memorable business leaders of our time who have demonstrated how taking bold yet calculated risks can ultimately pay off, even when they do result in short-term upheaval, tempestuous fluctuation, or even fallout. Of course, making hard decisions is never easy, and leaders must be willing to take calculated risks to achieve long-term success. It isn’t merely the stand-out cases that highlight this idea, but there’s a breadth of academic research that further backs the notion that those who take calculated risks are more likely to achieve long-term success than those who shy away from risk altogether. By carefully weighing the potential risks and rewards of difficult decisions, leaders can make informed choices that set their companies up for long-term prosperity. In my own experience, I have come to firmly believe that mastering this skill is critical to achieving sustainable growth and prosperity, even if it goes against my nature at times.
For most of us when we drill down, the most compelling reason for making tough decisions in the short term comes down to improving the company’s financial performance over time. While it comes as no surprise, a 1999 study by McKinsey & Company found organisations that focused on long-term value creation outperform their peers in terms of revenue and earnings growth, as well as market capitalisation (Houben, Lenie, & Vanhoof, 1999). An apt example of this springs from Indra Nooyi’s tenure as CEO of PepsiCo, where she oversaw a major restructuring of the company’s portfolio, which included divesting non-core brands and investing in healthier products. While this decision initially led to a decline in sales, it ultimately helped PepsiCo stay ahead of changing consumer preferences and remain competitive in the food and beverage industry. Steve Jobs’ famous decision to cancel many of Apple’s existing product lines in the late 1990s in order to focus the company on developing a smaller number of innovative and high-quality products is another prime example of this. We all know how unpopular the decision was initially, but even though it (predictably) resulted in short-term losses for the company, it ultimately helped Apple cement its position as one of the most successful and valuable organisations in the world.
Microsoft CEO Satya Nadella also made one of his most significant decisions to shift the company’s focus away from its traditional desktop software business and instead towards cloud computing and other emerging technologies when he came into the role in 2014. This decision required significant investments and changes to the company’s operations, but it helped Microsoft remain competitive and relevant in a rapidly evolving technology landscape. These examples provide further testament to Harvard Business Review’s findings that CEOs who prioritise long-term value creation over short-term gains are more likely to succeed in the long run (Barton & Wiseman, 2015).
These well-known “hard decisions” also highlight the reality that the world’s best leaders know they must adapt to changing market conditions in order to remain competitive in business. As markets evolve and new technologies emerge, leadership means being able to pivot quickly and make difficult decisions that will allow our companies to stay ahead of the curve. Harvard Business Review showcased research reinforcing this notion, finding that companies that were able to adapt to changing market conditions outperformed their peers by a significant margin (Eisenhardt & Sull, 2001). That particular research may be two decades old, but the theory itself goes back as far as “business” has been a concept.
Take the Roman Empire as one humble example. During its early years, the Empire was primarily an agricultural society. However, as the empire expanded, its economy began to shift toward trade and commerce. The Romans recognised the importance of adapting to changing market conditions and invested heavily in infrastructure, such as roads and ports, to facilitate trade and commerce. They also developed new technologies, such as aqueducts and irrigation systems, to increase agricultural production.
As a result of these adaptations, the Roman Empire became one of the most prosperous and powerful empires in history. Its economy grew rapidly, and its merchants and traders became some of the wealthiest and most influential people in the world. Meanwhile, other empires that failed to adapt to changing market conditions, such as the Persians and the Greeks, were left behind and ultimately declined. Its success serves as a powerful example of the importance of adapting to changing market conditions.
Swinging back to 2023, there’s a prickly reality that the nature of some tough decisions – such as tactical redundancies – is likely to be unpopular in the short term amongst stakeholders does compound the pressure on leaders when taking calculated risks. Yet while it may be tempting to prioritise short-term profits or appease all stakeholder opinions, leaders must remember that their ultimate goal is to build a sustainable and profitable company that can weather the ups and downs of the market. Once the decision is as good as made, mitigating any anticipated “popularity fall-out” ultimately comes down to a leader’s ability to communicate confidently and effectively with all stakeholders.
Leaders must be able to articulate the rationale behind difficult decisions and reassure stakeholders that short-term sacrifices are necessary for long-term success. A 2014 study conducted by the University of Oxford found that effective communication was a critical factor in the success of CEOs who made difficult decisions (Cheney, Christensen, Zorn, & Ganesh, 2014). By communicating clearly and transparently with stakeholders, CEOs can build trust and ensure that everyone is aligned around the company’s long-term goals.
In 2020, Coinbase founder Brian Armstrong announced that the company would not be taking a political stance on social issues and would remain focused on its mission of creating an open financial system for the world. He stated that the company’s goal is to be a neutral platform for all ideas and that taking a stance on any social issue would be distracting and divisive. This decision received major criticism from some employees and members of the tech community who believed that it was not enough to simply remain neutral on issues of social justice. In response, Armstrong offered a severance package to any employees who disagreed with the company’s stance and wished to leave.
In an October 2022 interview on the Tim Ferris Show’s 627th episode, Armstrong cited some of the reasons he believed it was the best decision for the long-term health of Coinbase, suggesting, a) it allowed the organisation to focus on the company’s core mission, which was to create an open financial system for the world, and not be distracted by the noise of taking a political stance on social issues, and; b) by offering a severance package to employees who disagreed with the company’s stance, it reduced internal conflict and ensure that all employees were aligned with the company’s values and mission.
Overall, the outcome of Coinbase’s decision not to take a public stance on social issues is complex and subjective, but according to Armstrong himself, the company was able to remain united in its vision, maintain a laser focus on its mission, and minimize the negative consequences to internal business operations resulting from conflicting beliefs and values amongst employees.
Zooming out, it’s important to remember that making difficult decisions in the short term is not a one-time event, but an ongoing process. By regularly reassessing the company’s strategy and making difficult decisions as needed, leaders can ensure that their companies remain agile and competitive in the long run.
In order to achieve sustainable growth and prosperity, leaders must demonstrate a commitment to long-term health by prioritising calculated and difficult decisions. Successful adaptation to changing markets is essential, and effective communication is vital for minimising any negative consequences of tough decisions. Leaders must therefore communicate with transparency in order to establish trust and ensure that all stakeholders are aligned with the company’s long-term objectives and mission.
Owner and Managing Director at Atteline