Strategic Long-Term Thinking In Business

In the 1950s, the Big Three dominated 70% of all car sales. No American had heard of Honda, Nissan, or Hyundai. One guy disrupted the whole system: Eiji Toyoda.

Eiji Toyoda was not the founder of any company. He was not a business man. In fact, he barely knew how to manage others.

Eiji Toyoda was the cousin of Kiichiro Toyoda. His job was to create the new factory for Toyoda Automatic Loom Works (making automatic looms, not cars). The best place to learn how to execute this tasks was in Dearborn, Michigan.

In Dearborn, Henry Ford created a state of the art mass production system. Eiji Toyoda set out to study the principles that made it operate so efficiently. But he realized something in the process.

Toyota couldn't achieve the same speed and scale of production.

The principles could not be replicated. Reproducing it required putting a whole new system in place. Adopting bits and pieces of Ford’s process would destroy the company his cousin’s company.

The brief realization Eiji Toyoda had became the seed for The Toyota Way. An idea that show the power of long-term thinking in a short-term world.

The End of History Illusion

You have a tendency to underestimate how much change we will experience in the next 10 years.

Remembering the changes you experienced over the last 10 years is easy. Imagining the changes that will come is hard. Your preferences, goals, and desires are what they’ll always be. The struggles you’ve overcome are memories of the past.

Your personal history has just come to an end.

Psychologist Dan Gilbert says, “at every stage of our lives we make decisions that will profoundly influence the lives of the people we’re going to become, and then when we become those people, we’re not always thrilled with the decisions we made.”

Let’s admit it. We think about long-term thinking in the wrong way.

Measure Actions By Long-Term Effects

Newton’s third law states: For every action, there is an equal and opposite reaction. This law refers to the motion of a object.

Your life isn’t an object with motion, but it does have direction. Every action you decide to do causes some reaction. Actions plant seeds.

You may win an argument. In the short-term, the other person agrees with your point. But you lost. Over time they’ll slowly go back to old habits of thought. After you win enough arguments, the other person will grow to resent you. In the long-term, you’re viewed as arrogant, egoistical, and a “know-it-all”. Regardless of who was right.

Eiji Toyoda understood this aspect of human nature. Putting Ford’s production system into place would be adopted by employees. But eventually they’d revert back to their old ways. It would not last long.

The entrepreneur’s job is to oversee, balance, and manage bigger picture. Value for an entrepreneur is directly related to their ability to think long-term. You need to spend more time imagining the future than reminiscing on the past. Avoiding the end of history illusion.

Thinking long-term has the power to change your perspective on events.

People have no problem paying fees, but hate paying fines. You’ll don’t think about paying for parking. But getting a parking ticket is different. Even if the cost for the ticket is less, it can ruin your whole day.

When we pay for things that don’t have an obvious price tag (anything that gets you returns in business) any additional cost feels like a fee.

I was hesitant to start writing a weekly newsletter (despite sharing my ideas on Twitter for a year). Why would I hesitant? It cost me ~$85 a month for the whole tech stack I have. This felt like a fine to produce content when I don’t make any money off it.

My friend Louis changed my perspective by saying “it’s just something you have to do. All returns require up front cost.” That $85 was no longer a fine, but instead a fee that will lead to more opportunities long-term.

The Toyota Way was built on one idea: great things are timeless. Instead of copying Ford’s system, Eiji Toyoda came back from the United States and began working with Taiichi Ohno, an industrial engineer, to build the Toyota Production System (TPS). It an innovation to the way Henry Ford organized his labor.

Developing great principles can guide you for a life time. There were two guiding principles weaved into The Toyota Way. Praise long-term views. Have deep respect for the process.

These principles have guided Toyota for more than 80 years. They became the north star for the strategic long-term thinking at the company’s foundation.

How To Make Long-Term Decisions

Jeff Bezo’s understands long-term thinking better than any other modern entrepreneur. It took 9 years for Amazon to report his first quarter with profits.

In a message to Amazon’s share holders Jeff Bezos gave the analogy of one-way and two-way doors.

To adopt long-term thinking into your business and life, the first step is to categorize decisions as reversible (two way doors) or irreversible (one way doors). Jeff Bezos stressed categorizing every major decision.

If you walk through a one-way door you cannot get back to where you were before. Two-way doors can always be reopened if you make a suboptimal choice.

When one-way doors are not made with the bigger picture in mind, all long-term thinking is lost. Next time you go to make a bigger decision, review your vision before deciding if you should make it.

FOOTNOTES

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