Independent Thinking Blog

What Companies Can Learn from Global Oil Prices

If you own or run a business, pay attention to how Saudi Arabia is handling falling oil prices.

They’re doing nothing, and it’s brilliant.

Saudi Arabia’s break-even point for a barrel of oil is somewhere around $20. Meanwhile, the price to extract that same gallon of “fracked” oil in the U.S. is much, much higher. High world energy prices have made fracking economically feasible; as those prices drop, at some point the equation will change.

I’m not an energy expert, but economics 101 suggests one energy source is today far more profitable than the other. All Saudi Arabia has to do is wait for domestic players to exit the U.S. market–and supplies to constrict.

You need to look past this quarter and this year.

A Long Open Road Ahead

The smartest organizations are willing to accept short-term losses in order to be successful and sustainable over the longer term. In his 2011 book The New Small, Phil Simon refers to this as being long-term greedy.

In the retail world, Amazon is the poster-child for long-term greedy. For example, the company discounts its line of Kindles (and forsakes higher short-term profit margins) to hook consumers into its ecosystem. In sports, good teams balance the desire to win-it-all-now with building an organization that can stay competitive and sell tickets year over year. For me, it means turning down the wrong clients and projects so I can focus on work that is a better fit for my business.

How is your business looking ahead?

“Nothing” by Darwin Bell (Flickr).

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