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Building Profitable Small-Cap Companies The Sleuth There is a big difference between a great business idea and a great company. The book Built to Last by Jim Collins and Jerry Porras explains why... Imagine that there was someone who just simply looks up at the sky and tells you the exact time and date. That is a fantastic skill to have. But what if this person had the ability to make a clock that would tell the time long after he/she is gone? That is a greater skill. And that’s what makes a difference in business. The person who can tell the time simply by looking at the sky has a skill. But the person who can build clocks and sell them has a great business. History shows that the people behind the greatest companies of our time are clock builders, not time tellers. According to Collins and Porras, “They concentrate primarily on building an organization -- building a ticking clock -- rather than hitting a market just right with a visionary product idea and riding the growth curve of an attractive product life cycle.” *********************************** Forget Mideast Oil Time Bombs -- Discover Energy “Clock Builders” in Our Own Backyard! Imagine -- 447 billion barrels of oil...and we won't have to kiss up to a single Saudi sheik to get it. This gas substitute will surprise you -- and it's already made ONE company just under $2 billion in net profit last year! And while other energy stocks are priced out of your reach, this one's easy to grab on the cheap. Score the Single Best Energy Stock of the Next 10 Years! *********************************** Take Citicorp for example. The company started as National City, a small insignificant local bank. James Stillman, Citicorp’s president from 1891 to 1909, had a vision to build a great national organization. In fact, as Stillman grew older, he made plans to step aside as president so that the company could “more easily grow beyond him.” So Stillman enthusiastically delegated his responsibilities to his associates. The result today is a $244 billion company who’s stock has increased nearly 50 times since inception. Now take Citi’s competitor Chase Bank. According to Collins and Porras, “Albert Wiggin, Stillman’s counterpart at Chase, did not delegate at all. Decisive, humorless, and ambitious, Wiggin’s primary concern appeared to be with his own aggrandizement. He sat on the boards of fifty other companies and ran Chase with such a strong, centralized controlling hand that BusinessWeek wrote, ‘The Chase Bank is Wiggin and Wiggin is the Chase Bank.’” Citi’s Stillman was a clock builder, Chase’s Wiggin was not. Now, let's look at another example from the retail sector: Wal-Mart versus Ames. In this case, Sam Walton was the clock builder. Built to Last says, “Walton valued change, experimentation, and constant improvement. But he didn’t just preach these values, he instituted concrete organizational mechanisms to stimulate change and improvement. Using a concept called ‘A Store Within a Store,’ Walton gave department managers the authority and freedom to run each department as if it were their own business.” He gave rewards to employees that helped cut costs, he encouraged associates to be creative, and most of all he gave tremendous incentive for his employees to come up with new ideas. Ames, on the other hand, was run differently. According to Collins and Porras, “Whereas Walton concentrated on creating an organization that would evolve and change on its own, Ames leaders dictated all changes from above and detailed in a book the precise steps a store manager should take, leaving no room for initiative. “Whereas Walton groomed a capable successor to take over the company after his death (David Glass), the Gilmans has no such person in place, thus leaving the company to outsiders who did not share their philosophy.” *********************************** Are You Ready for Denver Flu? Important Information on the Deadly Infection That's Killing the Housing Market Make no mistake: The game is up in housing. "Denver Flu" is spreading...and even mortgage lenders say prices could tumble up to 20%. But one group has already had a chance to see 124% betting against the bubble -- and it's preparing to rake in much, much more. Here's everything you need to know about "Denver Flu" -- and how it could be your ticket to 300% gains over the next few years. *********************************** A Forbes article in 1990 said of Ames, “Co-founder Herbert Gilman has seen his creation destroyed.” At the same time, Sam Walton left his company strong and equipped for the future. Our final comparison is between Motorola and Zenith. While Motorola is one of the world’s most successful technology companies, founder Paul Galvin himself wasn’t an engineer. But he hired excellent engineers. According to the book Built to Last, “He encouraged dissent, discussion, and disagreement, and gave individuals the latitude to show what they could do largely on their own. “He was not an inventor, but a builder whose blueprints were people. He urged us to reach out to people -- to all people -- for their leadership contribution. Early on he was obsessed with management succession. Ironically, he did not fear his own demise. His concern was for the company.” At Zenith, it was a different story. When its founder, Eugene F. McDonald, died in 1958, he had no successors. That’s because, like Wiggin and Gilman with their companies, McDonald was Zenith. Galvin and McDonald died within 18 months of each other. Motorola sailed successfully into new arenas never dreamed of by Galvin. Zenith languished and, as of 1993, never regained the energy and innovative spark that it has during McDonald’s lifetime. Clock builders make all the difference in a company. Not only do they build the organization to outlast themselves, they imbibe in their employees a sense of creative freedom. An expected outcome of the clock builder philosophy is shareholder value. Companies run by clock builders and not time tellers have returned their shareholders tremendous gains. So if you are looking to make a new investment, choose a company that is built to last. Invest in the clock builders. Regards, Sala |
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Sala Kannan earned her economics degree from prestigious Cambridge University in England and is an expert on global economic trends, as well as versed in developing nations and their economies. <click here for full bio> |
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