When you think of companies that are not only built to last, but rather, built to thrive – in boom times and tough times; in times when incumbents rule and times when disruptors rule – what companies logically sit at the top of the pyramid?
Equally important, what should be the criteria for assessing them?
Beginning with the second question, let me propose a straw man for assessing the "Built-to-Thrive" bunch:
- Differentiated Products: the company’s core offerings are not commoditized relative to the competition, which gives the company pricing power.
- Diversified Revenue Sources: the company’s aggregate revenue is split up across multiple lines of business.
- Depth of Product Pipeline: the company’s R&D engine is healthy, delivering with regularity and predictability not only new commercial-grade products, but also new revenue sources that favorably impact the bottom line.
- Quality/Depth/Durability of Management Team: the company’s management team is high-caliber, the "bench" is deep, and top management tends to stay at the company for the long haul.
- Operating Margins: the company exercises stringent fiscal controls and operates within prescribed operating margins.
- Profits: the net effect of the above is a highly profitable business.
- Cashflow: the business generates positive cashflow and lots of it.
- Cash Reserves: the company has ample cash reserves to weather storms, accelerate R&D, up marketing spend or M&A activities as needed.
- Healthy Balance Sheet: The balance sheet is not weighted down by debt, uncollectible receivables or other financial engineering that hobbles the company.
- Well-defined Corporate Culture: Employees know what the company stands for, how that drives decision making, prioritization thinking and it serves as a unifying force within the company.
Based on the above criteria, the following are my Gold, Silver and Bronze standard-bearers:
Apple is the Gold Standard It should be no surprise to readers of this blog, that I put Apple at the top of the pyramid, inasmuch as they do spectacularly well on all of these criteria, save for a perceived dependence on Steve Jobs (gut: we’ll find out soon enough if perception is reality) and an uncomfortable (for me) proclivity to mislead/abuse press, partners and investors on fringe items (Exhibit A: matters pertaining to health of Steve Jobs).
Google is the Silver Standard From Search to Keyword-based Search/Display Advertising to Gmail, Maps, YouTube, Earth, Desktop and Maps for mobile, Google does very well in a lot of categories, has achieved a dominant position in a couple of others, and runs a very profitable enterprise. Some recent brain-drain and a failure to materially diversify revenue sources must be counterbalanced by a strong corporate culture, the courage to dive aggressively into new markets (e.g., mobile devices via Android) and a recent increase in fiscal discipline; most notably, the maturity to feed the winners and starve the losers product-wise.
Amazon is the Bronze Standard Amazon has so totally reinvented retail, and its model is (somewhat) category independent that, combined with a relentless focus on customer satisfaction, their foundation is solid. No less, Bezos and company have built a platform that enables third-party merchants to plug into their technology infrastructure, their consumer base and their physical fulfillment capabilities. Plus, they are pioneering cloud services (via Amazon Web Services - Elastic Compute, Mechanical Turk) and reinventing the book for the digital age (via Kindle). Finally, they have a very strong, healthy culture, subject to the caveat that Jeff Bezos so overshadows his executive team that they are in a similar bucket to Apple with Jobs, and their fiscal discipline seems to ebb and flow based upon real-time reads of the market.
Cisco: Close, But No Cigar While Apple, Google and Amazon regularly swing for the fences on the innovation front, all the while protecting and nurturing their core businesses, Cisco tends to “talk” about swinging for the fences; namely, wholly new services that combine voice, data, video and information. In practice, however, they feel more like they are in the "ingredient" business when they need to be in the "recipe" business. In other words, while they are the unquestioned leader in networking gear, have a tremendous sales organization, and are aggressive on marketing spend and on the M&A front (e.g., Cisco’s Consumer unit bought Pure Digital, makers of the consumer-friendly, Flip Video video camera), they seem to be more rhetoric than revolution these days. They are IBM, which has its merits, but the downside is that they no longer feel like a game-changing company.
Am I Showing a Consumer Bias?
Maybe I am showing a pre-disposition to favor consumer-oriented companies in my Gold, Silver and Bronze selections, but that is also a reflection of a core belief that post-tech bubble, innovation flows from the consumer realm back to the enterprise, and not the other way around (i.e., the enterprise is a follower, not a leader, in adopting technology innovation).
As a result, this tends to make companies focused on the enterprise segment less dynamic in terms of their cultural and operational DNA. This obviously can change if and when enterprises embrace technology innovation with greater fervor than they have in recent years.
Who Else? Who Did I Miss?
Did I miss anyone obvious, especially outside of tech? Who looks better than these three companies on a long-term basis in terms of differentiated products, diversified revenue sources, depth of product pipeline, quality/depth/durability of management team, operating margins, profits, cashflow, cash reserves, balance sheet strength and strong corporate culture?
