The Amazon HQ2 drama has given us a fascinating look into a negotiation between a top company and a top city. Both have long term business objectives and a desire to stay on top. The city’s perspective has been especially insightful. Scott Galloway has the standout quote,
… great brands led by great operators have one thing in common: they invest vs. discount. The governor and mayor’s job is not to make NYC less expensive, but to make the city worth it.
Every business should take a hard look in the mirror and mentally digest that quote.
To discount is to race to the bottom, where profit margins cease to be. On a commodity good or service, it’s a fair tactic because it’s not a long game – you are just trying to flip something faster than your competition. Getting to the sale first is the risk. When you need the next sale more than you need to preserve your profit margin, you don’t risk losing over price – you discount. Anytime that having the lowest price is driving customer choice – you discount.
To invest is to race towards the future. An investment is only worth it if you get the results you invested for (or better). Investing is a long game because you’re ignoring what the short-term hustlers are doing now in order to have an advantage later. Getting to the future first is the risk. When you need the future market’s profits more than you need the last drop of today’s – you invest. Anytime value is the driving signal – you invest.
The dividing line between “too expensive” and “worth it” is in the eye (and analysis) of the beholder. NYC and Amazon may be parting ways for now, but as Galloway and others (Barry Ritholtz in particular) have pointed out, look at some of New York’s recent wins leading up to their stance against Amazon. Consider these through the lens of investment: Google recently added to their presence in the city – without subsidies. Cornell set up their tech school in NYC, adding yet another powerhouse magnet for talent to the city. Now ask, is it worth it?
Professionally, it becomes pretty clear pretty fast who is playing the long game and who is playing the short game. Studying high-level public negotiations as Amazon and NYC helps. Remember the rules of when to invest and when to discount. There’s a big future out there and somebody is going to capture a big piece of it. We have to make sure what we’re doing is going to be worth it.