If the Houston Astros had been a publicly traded company, there’s a good chance they wouldn’t exist today.
The Astros, who won their first World Series title last night (Nov. 1), were among the worst teams in baseball for years. Between 2011 and 2013 they lost more than 100 games in each 162-game season. In 2012, they ranked dead-last in the National League for attendance, and on at least one occasion, the Nielsen rating in Houston for a televised game was 0.0.
In today’s business climate, few corporations could survive such a protracted slump. In almost any other industry, activist investors would have bought stakes and agitated for a change in management. Or the company would have become an acquisition target for competitors, or for private equity firms that would have sold it off for parts.
Fortunately for their fans, the Astros are privately held, in a league that shares revenue among all its members. The franchise had a plan to rebuild, and an owner who was committed to it.
Years of losses allowed the team to accumulate draft picks who were converted into promising young players. Those young players struggled while gaining valuable major league experience. But a low payroll without high-priced veterans gave the Astros the flexibility to acquire free agents when the team was finally poised to contend.
In retrospect, it all looks like genius, but there was no guarantee the plan would pay off. Some teams (I won’t name names but they know who they are) have been in a rebuilding mode for more than a decade. But in the case of the Astros, the organization clearly calculated that its best chance at enduring success was short-term misery.
Few public companies are afforded that opportunity. Any sense of weakness can attract predators, and CEOs are pushed by investors to deliver immediate returns. In a McKinsey survey, 87% of executives said they had less than two years to produce “strong financial performance.” It’s no wonder that companies are reluctant to go public, and those that do are trying to engineer governance structures that insulate themselves from outside pressure.
There’s evidence, though, that building for the long-term can produce more robust, durable companies. Companies that invest in their employees and in R&D are more able to withstand volatile markets, and contribute to stronger economies.
The Houston Astros are not Procter & Gamble, and what works in baseball may not work for multinational corporations. But the newest World Series champs are a shining example that when an organization sacrifices in the short-term, the future can be glorious.