I suppose it’s easy for me to talk about the pitfalls of being a public company given that there aren’t thousands of people lining up to buy shares in Jackson Fish Market (yet :) ). That said, I will judge anyway…

From the New York Times on the topic of Starbucks recent troubles:

“These people say that the company was so determined to meet its growth promises to Wall Street that it relaxed its standards for selecting new store locations.”

Basically, Starbucks had discipline in selecting store locations but in order to meet their growth targets they became more lax in their approach. The problem of course is that the planet may only support so many Starbucks outlets. And just because some executive set the number higher than that doesn’t mean the economics are suddenly going to change.

Why is it that so many business leaders feel that they have so much control over things? Why don’t they recognize that businesses have an organic size that’s dependent on many more factors than they personally control (or claim to control).

Of course, if CEOs had to admit how little control they have over the physics of their business environment and opportunities then they might have a difficult time justifying their huge payouts.

Instead, CEOs make poor judgments based on hope and the demands of Wall street. Starbucks basically shifted their disciplined decision making from being based on what the numbers told them about a location to what they hoped the numbers would say down the road. Hope doesn’t get people to buy more coffee.

And then there’s the question of growth:

“The potential rewards of rapid growth may have led Starbucks astray.”

It’s not that I am opposed to growth. I’m a fan. That said… there’s the kind of exponential growth that leaders of big business look for and Wall street rewards, and there’s horizontal growth that is unglamorous and doesn’t give the same return to investors. Exponential growth is a “never-ending” hockey stick type curve of new coffee shops being opened (as opposed to the 600 being closed right now by Starbucks). Horizontal growth is growing a solid business to its natural size, having it constantly renew itself to keep its customers and outpace inflation, and then using the proceeds to reward the employees and find new businesses to grow organically.

Mention that to Wall street and they’ll yawn.

I wonder what Jerry Yang thinks these days the upside is of having Wall Street’s priorities decide the fate of his company?