Remember the expression built to last? It was an expression that my grandparents used to differntiate value. What I saw as an old tool, or piece of basic furniture or clothing they valued. The phrase also describes capabilities and inherent qualities that stand up, endure over time surviving changing conditions.
The ups and downs of the stock market represent value differently. Analysts love to pounce on companies when they stumble. The bigger the company the better the blunder and the better for the Bears. Retail food and department stores currently appear to be under heavy fire these days, even brands and companies that dominated their industry.
So what value should you seek? Investors seek returns but don’t always consider the long term costs, do they? Does sustainability really matter?
I suspect some of these thoughts led Jim Collins and Jerry Porras to title their 1994 book Built to Last (BTL). Sure they may have thought to follow the example and success path set by Tom Peters and Robert Waterman whose titled 1982 research project In search of Excellence also became a best seller.
Sadly, in writing the book Collins and Porras did what other well-meaning authors do. They put a priority on pithy copy over substantive analysis. In short, they wrote great stories. In fact they went so far as to feature the CEO as leader/hero. Their research (see sidebar) to distill what made companies visionary was refashioned into a great read. Nothing wrong with a great read, unless the reader confuses the story for prescriptive advice and your analysis turns out to be a bit superficial. If you think I’m being harsh, consider these comments:
Martin Maneker, Collins and Porras publisher put it this way in the Daily Beast in 2009
“the heart of the Good to Great philosophy is that disciplined people, engaged in disciplined thought and taking disciplined action, have the greatest chance at success.”
Or in Collins own words on his website posted in May 2009 about his book Why the Mighty Fall :
“[Porras and I were ]discussing the possibility of a project on corporate decline, in part because some of the great companies we’d profiled in the books Good to Great and Built to Last had subsequently lost their positions of prominence. On one level this fact didn’t cause much angst; just because a company falls doesn’t invalidate what we can learn by studying that company when it was at its historical best.”
Or Consider Fast Company’s look at BTL 10 years post publication written in 2004:
“ at least 7 of BTL‘s original 18 companies have stumbled (8 if you’re cynical about HP) — scarcely better than the results you’d get by flipping a coin.”
In other words, the fundamentals that stand the test of time more likely due to discipline or luck. Sorry that it’s not the five that Collins and Porras research efforts describe.
So why did Jennifer Reingold and Ryan Underwood in their Fast Company retrospective review of this highly influential business book try to salvage its essence? For the same reason that these books continue to inspire and continue to be best sellers. The Fast Company authors looked beyond the company profiles and focused on the stated principles.
As pointed out earlier, Collins and Porras in later editions had to qualify their original findings in the preface. Collins’ later writing also back pedals with post mortems describing how his BTL companies had lost their way.
I’m not the first to question the relevance of the principles to demonstrate the thesis of the book. In fact Collins was well aware of the criticisms leveled at Peters research, and why they adopted matched pair design for their own research.
What bothers me is how story telling hijacked the writers’ judgment. For example, why use distinctive new prose when citing the principles? The better to make believers and best sellers, that’s why.
Long before social media, Collins understood the power of language. Catchy language could impress the ideas on his reader but also fuel fan sales, and “word of mouth.” Consider one of his most famous original phrasings:
“A Big Hairy Audacious Goal, or BHAG, a long-term vision that is supposed to be so daring in its scope as to seem impossible. “
It’s in these language choices that I begin to feel the book tilt. BHAGs conjure really ugly images. Who, other than a hero, would dare to take on something ugly? Personally, my criticisms side with Reingold and Underwood. Even by 2004, the BTL principles seemed less relevant in the face of massive consolidation, global outsourcing or even disruption that shifted the business environment. But the descriptive principles they coined failed to capture the essence of deeper qualities that underlay any organizations success, ones my grandparents would recognize. I’m talking about people believing in people.
Recently, I attended a local meeting of the Private Directors Association. I heard a panel of three CEOS talk about their 100 year old companies.
At the close, each of the CEOs identified factors they thought helped them survive. Profitability never made their list, nor did any pithy phrases tumble from their lips. The single repeated understanding described their commitment to people and values. Not only have these companies experienced low employee turnover over the life of the company, they shared unusual views about proper compensation and invested heavily in training. For two of the three, visible diversity on their boards had been a conscious decision in the most recent period.
Another notable common thread described their recognition of business value–that goods and services they offered should always exceed the price customers paid.
Pride of ownership too dominated and was demonstrably evident in each of these companies successes though Mead&Hunt now employee owned and operated, and the other two remain family owned and operated. Each and every company pointed out their expectation of modest returns and willing attitudes toward change and adaptation.
In other words, missing from the conversation was the idea that any of them expected to use the business as a vehicle for generating great wealth.
A friend pointed out that mid-market company values, at least evident in the mid-west, don’t seem to match those of corporate America. I wouldn’t go that far. Particularly since these companies were all privately owned, its difficult to measure them using the criteria that BTL employed– 10x returns on stock price. Not a one would be considered leaders in their industry. Even Mead & Hunt which is employee owned understands that returns on their own capital rely directly on production and interaction with customers and not financial shell games.
Kevin Boyle, the CEO of Schulze & Burch, “the biggest baker of toasted pastries in the US” typified the distinctive attitude of these companies. Here’s how he answered an investment banker’s inquiry about how growing valuations and M&A affected his business. “Keep doing what you’re doing,” Boyle said, “it’s good for me and keeps my cost of capital down, and also minimizes my competition.”
Had to laugh at that.
If you are curious Wikipedia’s list of the oldest surviving companies found many that began before 1300 and not surprisingly they were primarily service businesses, and remain small– as in less than 300 employees. This list https://en.wikipedia.org/wiki/List_of_oldest_companies