When an investor puts money into a company, he generally assumes his investment will be used wisely. He hopes each dollar will be put into building on the great idea that has been pitched, with the result being that over time, the investment brings big returns.
Unfortunately, this all too often isn't the case. I live in Silicon Valley and I see all kinds of corporations spending money all over the place. In large corporations, waste is part of everyday life. Investors like myself are often completely unaware of this waste, since they aren't on site each day to oversee operations. But it's time that shareholders and consumers alike demand accountability from big businesses and that starts with realizing the waste that exists. Here are a few of the biggest sources of waste in business today.
When marketing teams focus on simply spending a set amount of money on disseminating brand messages each month, waste is often the result. In an era where teams can measure and manage each aspect of their online marketing efforts, media spend can be more difficult to measure. As a result, businesses lose money each year on traditional media spend (billboard, magazine, newspaper, TV) due to failure to adequately measure campaign success and strategically plan based on those measurements. Many large companies have cut their traditional spend as a result.
In recent years, shareholders have become all-too-aware of corporate spending on political campaigns. As a result, they have taken an interest in political spending from each of their investments. There's a reason for this. A 2012 study found that companies that shell out money on political campaigns grow more slowly and invest less in research and development than those that don't. Many investors feel that the money companies spend helping politicians succeed could be better channeled into growing their own businesses.
As an investor, there may not be much you can do about these political donations, but at the very least it's a sound idea to be aware of just how much any investment has given to these causes.
Litigation and E-Discovery
Large corporations are constantly fielding lawsuits-as the defendants in various types of litigation. While it's difficult to stop the onslaught of often-frivolous litigation, the processes to respond to litigation can be much more efficient. For example, nearly every litigation matter goes through a process of discovery where each side exchanges relevant documents.
But remarkably, even in today's interconnected world of electronic information, the process is ridiculously inefficient. Corporate legal firms rely on printed documents and inadequate technologies for ingestion and filtering of information. There is hope though. Cloud-based legal services, like eDiscovery platform Logikcull, are now available to make the process much easier-streamlining process and greatly reducing costs.
When my last business got into litigation with former owner, there were several shortcuts that my lawyer pointed out. This saved us hundreds of thousands of dollars.
Too Much Real Estate
This one really bugs me. Last year I invested $50,000 into a company that I felt was promising. They ended up raising $500k. The day after they got my check (and a few others) they went out and signed a 5 year lease on large office space fit for 100 people in Palo Alto. They were a team of 8 people. Wrong company to invest. 9 months later they closed their doors. I didn't invest in them again.
According to Accenture, the average firm has 30 to 50 percent more real estate than it actually needs, due to redundancy and underutilization. Many companies plan for anticipated expansion by buying up office space. This doesn't always work out and may be more hurtful than anything, depending on the health of the company. Getting rid of excess real may take a lot of effort, but it can also be expensive to hold onto it, year after year.
Stock Buy Backs
Earlier this year, corporate spending on stock buy backs reached a record high. This spending is designed to drive up stock prices and increase demand for the stock that remains available afterward. However, these dollars could often be better spent growing the company and incentivizing employees to be more productive, thus bringing in more customers. Shareholders are sometimes behind this excess spending on shares, since they feel it increases the value of their own investment. However, long-term, this is usually not a healthy business model.
Shareholder calls aside, meetings are regularly cited by employees as the top time waster in corporate America. One study revealed that one in four workers believes they spend more time in meetings discussing the work that needs to be done than actually doing that work. If companies stopped having meetings to discuss the pre-meeting, followed by a meeting and a post-meeting follow-up meeting, they'd likely spend more time coming up with great ideas and winning over customers.
Investors have every reason to be outraged over corporate waste when it applies to their own investments. By learning as much as possible about how money is being spent at the companies in their portfolios, shareholders can ensure they're putting their money into the ideal situation, a company that takes that investment seriously.