Pillars In Long-Lasting Companies

By Tasnia Huque, Senior Associate, Cue Ball Capital

I have been reading a lot recently on how “seemingly” napkin ideas have transformed to long-lasting enduring company brands. We also as a team spent considerable time at our offsite trying to understand what it means for companies to take the long-view; this piece is a summary of our collective insights. We evaluated certain companies as case studies that have been around for at least half a century and principles they deployed to achieve such a feat. Through those case studies, I identified several pillars that startups should look to embrace. For an early stage company, it is not necessary to excel in all of these pillars to be successful. In fact, depending on a product’s value proposition, it might even be impossible to – for example, a finely crafted scarce product are rarely must-have artefacts. However, the more your company embodies such values, the better the long-term prospects.

LT Slide

CASE STUDIES

The below companies, all at least half a century in existence, were evaluated to create the above framework for the pillars: Bang & Olufsen, IKEA, In & Out Burger, Intel, Kiehl’s, Levi’s, Nike, Marvel Entertainment, McDonalds, Reed Elsevier, Shiseido, Sony, Steinway & Sons, & The Economist.

I will be touching on an example of each for the four buckets.

PILLAR 1: Management Policies

Sony Corporation was founded in 1945, during Japan’s economic (and likely emotional) recovery from World War II. Today, the company boasts 146K employees generating $68B in annual revenue. A household name (particularly in Asia), thanks to their market penetration in house-hold electronics, gaming, music & movies, hi-tech equipment, and even financial services, Sony began with Masaru Ibuka wishing to democratize access to technology to the common household. He began with a few of his friends, jobless post war, and began toying with technology developed by the military and government to figure out commercial applications. They did not have a business plan, but rather goals:

– to establish an ideal factory that stresses a spirit of freedom and open-mindedness, and where engineers with sincere motivation can exercise their technological skills to the highest level.

– to reconstruct Japan and to elevate the nation’s culture through dynamic technological and manufacturing activities

– to promote the education of science among the general public

Their first product, an electric rice cooker, failed miserably in the marketplace, but through continuous trial and error, and over time, they innovated highly commercial technology applications. Their vision to revitalize the Japanese economy through motivation and fluidity, but more importantly through impassioned employees, proved most powerful in helping build Sony to a multi-billion business.

Today, we see examples of this in companies where the employee engagement and devotion is the strategic advantage of the company. We think it’s the bean bags and free lunches, but rather it is the championing of the employee and her needs that sets businesses apart.

PILLAR 2: Industry

Levi’s is one of the best examples of a company that has continuously ridden the tides of industry extremely well, positioning their brand in tune with the needs of the majority market. In 1873, when blue collar workers needed a garment that would not tear in rough working conditions, the blue jean was founded. Post industrialization era into the foray of the modern worker saw Levi’s introduce khaki pants and coats, to serve the gap in fine office wear. Two years before women were granted the right to vote, it released the first garment for women in 1918. In 1991, it became the first multi-national apparel company to establish labor rights, health, safety and environmental standards for vendors’ factories where clothes are produced. In 1993, the company’s “women breaking the mold” ad breaks new ground in American advertising by dismantling stereotypes about women. In 2009, Levi’s launches its care for the planet initiative by encouraging consumers to wash less and in cold water. In 2012, it reaches its goal of reducing greenhouse gas emissions by 11 percent. Again, and again, the company proved successful in sharing a voice and identity in tune with current tailwinds and trends in the business world.

PILLAR 3: Product

“For over 160 years, Steinway & Sons has been dedicated to making the finest pianos in the world. Our pioneering handcrafted methods are still employed today to ensure our uncompromising standards of quality, in turn ensuring that the Steinway piano remains the peerless instrument of uncompromising expression.”

With an ASP of ~$80K per piano, the price tag is no joke. But it is a must-have for the rare perfectionist. The scarce crafted quality is what makes the product so desirable. Steinway knows they are not for everybody, but everybody knows Steinway pianos are the best.

Knowing how you would like your product to be defined in the marketplace is always a good starting point: must-have vs. crafted, quality vs. quantity, consistent vs. versatile.

PILLAR 4: Company

Reed Elsevier, a 135-year-old academic publisher, has crafted a business model that even the digital internet has been unable to disrupt thus far. Unique in its business model is the fact that the user is both the producer of academic content and the consumer of such content. The user needs to pay to get her content accepted on scientific journals, and also for a subscription to access the content once published. The user is incentivized to maximize readership towards its own content, and thus also serves as marketers for the Reed Elsevier brand. This fundamental structure of the publisher’s business model allows it to generate over $25B in annual revenue, with a 34% operating profit margin, almost 4x the average profit margin of companies in the FTSE 100.

Modern day lingo for this phenomenon is “network effects”, whereby the usage of a product by one user leads to usage from other connected users, leading to sustainable and organic growth. It is easier said than done to encapsulate such a character in a product, but doing so will lead to monopolistic business attributes.

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I hope this framework helps in identifying and nailing your company’s core principles in pursuit of an everlasting brand. All and any thoughts on the principles welcome @tasniahuque on twitter.

 

March 15th, 2018|