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[This is a semi-regular column that takes a controversial and sometimes outrageous look at trends in the business community. The intent is to stimulate thought and discussion. The opinions represented here do not necessarily represent the opinions of VentureConsult and ABC's of Small Business.]

It seems obvious to me that American business has totally sold out to Wall Street and got paid with nothing more than a wooden nickel. How is it that for the last two years dot coms who had never made a profit, had their stocks command outrageous prices, while successful companies with an established track record are punished if their earnings don't exceed the previous quarter's, the previous year's and the analysts expectations?

The whole dot com thing was obviously a fad, and so can be excused. Personally, I never put a penny there and I hope you didn't get burned too badly. The market eventually has a way of figuring this stuff out and correcting.

No, my real concern is in the expectations we place on those companies that turn out an honest product and make a reasonable profit. 20 years ago, analysts looked at these companies with an eye toward debt, assets, sales and earnings. A company was expected to invest in its business and it was understood that wise investments eventually paid off in increased sales and profits.

In the '80s we saw the rise of the analyst. Suddenly there was an increased focus on earnings. At the same time we saw a dramatic increase in executive compensation, and much of that compensation was in stock or options. Now, you're Joe CEO and the company hands you $10 mil in options which mature in 5 years. Suddenly you are vitally interested in the stock, much more than you are in the company. Are you going to be willing to invest in a large R&D project which will tie up resources for the next 3 years, or are you going to look for ways of milking existing products through promotions and reputation and hope you can hold out until those options mature? Well, duh!

We saw it throughout the '80s. This earnings pressure caused companies to abandon research, sell off assets and even play some creative accounting to meet those earning numbers. Keywords like "core competencies", "Strategic outsourcing" and "contract manufacturing" became the rage. Instead of a diverse product line with several successful offerings, companies started looking for the home run, shedding a loyal customer base in hopes of a new, larger, but unproven one.

After a bit it was no longer enough to make a profit yourself. A company with good earnings could still see its prices dive if somebody in the same sector stumbled. Now can somebody tell me how my stock price can fall if I successfully pull some market share away from the leader? Who's been smoking what?

I keep hearing about focusing on core competency as a means of improving earnings. The theory goes that if you are diversified, you are not concentrating in what you do best. How then do we explain General Electric, a highly profitable company who makes everything from light bulbs to locomotives? Where would IBM be today if they had concentrated on their core competency of punch card sorters?

These days having an expertise in a single market segment isn't sufficient. It seems you need to focus on a single product line. Now it seems to me that diversification within a technology is a good thing. It helps you weather downturns in a segment. If the cell phone market crashes, you can ride it out with your division that produces industrial climate controls. You probably won't see those giant peaks, but when a segment crashes the company doesn't fold. A company which looks at a spread of products which will weather a segment downturn and continue producing products as well as employing workers for years to come. And when you get right down to it, shouldn't that be the purpose of business?

At least that seems obvious to me.

-Jay Nemeth-Johannes