It is sometimes difficult for an outsider wishing to understand a business to actually recognise and identify what a company stands for.
I have often visited company stands at trade shows and it has taken me a few long minutes to understand what it was the business actually did.
The abstract marketing strap lines and mission statements did nothing to help me in my endeavours.
Mission statements play a part and branding is important, but they need to make sense, my favourite stand I saw was for Uzbekistan Airways with the tagline “Good Luck”.
The reason I say this is to reinforce my belief that successful businesses usually have a clear vision of who they are, what they do and why that matters.
As an investor, reading the company’s business plan and to a lesser degree getting behind their mission statement should be at the top of the list when you do your own research.
It is a truism that great and longed lived companies are that way for good reason and not chance.
Common to many is the knowledge that they know what they stand for (the mission statement) and they execute a plan to deliver on it (the business plan). There are many marketing and business gurus that make a fortune on books and seminars critiquing such organisations, but in many ways, they aren’t that complicated to understand.
In fact, the art of building a successful business can be summarised in three succinct points made by the late and great Hans Rausing who was the CEO of Tetra-Pak.
"First, simplicity, never do things which are complicated. Second, you must talk and listen to everybody in your company. Third, through risk maximisation as there is no way you can succeed in business by playing safe". He also said that a successful business produces something that is absolutely necessary, but that’s easy to say when you actually have one.
Tetra- Pak is one of many privately held companies who, without the need to defer to the pesky investment community, embark on very long-term growth strategies, dominate the sectors in which they operate and provide healthy returns to their long-term owners and employees alike.
Other examples include IKEA, Robert Bosch, Aldi etc getting the picture? They are the exemplars of the corporate world but sadly closed to us as investors.
Large established publicly listed corporates by-and-large mirror these organisations and are investable, but course, it is way more exciting to get in at an early-stage enterprise than invest in a boring old corporate, isn’t it?
I mean to create something of real value is every budding entrepreneur’s dream and to be the investor there at the start of the journey is hugely exciting is it not?
But doing something that nobody else has done before is actually quite hard.
Most new businesses are a reinvention of old ideas with a sprinkling of new technology. It is as true now as it was in the past to say that the best start-ups solve really big problems by developing a theory then executing on it based on intuition and available technology.
So, in these circumstances it’s doubly important to understand and interrogate a prospective company’s growth strategy/business plan.
If it doesn’t answer the fundamental questions of: what do they do, why that’s important and who cares, then dig deeper and don’t just rely on the founder’s charisma and force of conviction.
On Salesforce’s own website (a company which I greatly admire) they tackle this subject with a famous quote by Benjamin Franklin “If you fail to plan, you are planning to fail.”
They go on to say that this sheds light to the fact that 50% of small business start-ups fail before they reach the five-year mark. And while there are several factors that could account for this, failing to plan and implement a long-term business growth strategy is certainly near the top.
So, to wrap up these are key things I look out for in company strategy / business plans.
It should be boring and repetitive saying the similar thing year after year. However there needs to be evidence that the long-term growth strategy is being managed, monitored and revised, not just to ensure long-term survival, but to achieve increase in growth and profitability.
See how many times they mention their staff. A company that treats its employees well will unfailingly prosper. Great companies know that well-paid employees are an asset, not a financial liability.
Be wary of the need to pivot and diversify, when a company embarks on an expedition into a new business sector it always underestimates the fight put up by the incumbent companies in that sector, make sure they are doing their homework and that they have a defined value proposition. Finally make sure they have a true sense of who they are, why they matter and where they fit in their market.
Tim Rogers is the former CEO of AB Dynamics Plc and is now the owner and Non Exec director of a number of companies involved in SME new business development and advanced engineering technology.