Each Monday I post the next section of my 2001 book, which was originally called (by the publisher) Hoover’s Vision but which I have now retitled The Art of Enterprise. I have posted over half of it already; click on the “Monday” column to see all the prior sections. The entire book can be downloaded as a PDF for $10 at http://www.scribd.com/doc/25085990/The-Art-of-Enterprise-by-Gary-Hoover-January-2010
The Consistent Vision
In this era of rapid, even accelerating, change, it can be difficult to know which way to head. If you want to create a new company from scratch, as I have done three times, you may hear one direction from the venture capitalists today and another tomorrow. If you are running a public company, you will get one signal from Wall Street today and another tomorrow. Your own board of directors or board of trustees may waver from one meeting to the next, from one headline to the next, from one business guru to the next.
And yet, if you study great, lasting enterprises, the evidence overwhelmingly tells us to stay the course. If your course is based on a sound idea, if your direction reflects what you know about people, about trends, and about geography, it should serve you well over time. Your confidence in your vision comes from knowing what matters – knowing what you are good at, knowing what is important to you, knowing where your bread is buttered, and sticking to your vision through thick and thin, through bad quarters and good.
As I mentioned earlier, I grew up in a GM factory town. As kids, my friends and I were obsessed with cars (some of us still are). In the 1950’s, most of the world’s great sports cars were made by the British and the Italians, with a few German cars thrown in for good measure. The two industry giants, General Motors and Ford, decided that this needed to change. GM created the Corvette, Ford the Thunderbird. Study those two models in the intervening 40+ years.
The Corvette has always been basically the same: a sports car with a V-8 engine (actually, it was a 6-cylinder engine the first year, but they soon got that fixed), two doors, two seats, very fast, sometimes loud, often uncomfortable, usually red. If you have followed GM over those 40 years, you know how confused the company has at times been. You know that they must have closets full of consultants’ reports urging them to abandon or modify this vision of the Corvette. In the oil crisis of 1973, they probably discussed a 4 cylinder Corvette. It is likely that they are talking about a Corvette sport utility vehicle today. But, at least so far, the car gods have smiled on this car and said, “No, if we are going to make a car called a Corvette, let’s stick to what made it famous. The word Corvette means something to people; we cannot afford to lose that. If people no longer want a hot, fast, red, two seat V-8, then stop making the Corvette, but don’t fiddle with that name and what it represents.”
On the other hand, the Thunderbird started as a two door coupe, then became a four door, a family car, a luxury car, and everything in between. While the Ford Company has out-marketed GM in many of their numerous battles, this is one area where Ford lost its focus. If you study where all this led to, you find that the Corvette continues in production and continues to periodically make the covers of the car magazines. On the other hand, Ford eventually pulled the plug on the Thunderbird and stopped making it. The brand had lost all its meaning. If you take your study one step further, you will find that Ford has now announced a “new Thunderbird,” which will be a two seater modeled on the original. They are trying to recapture what they lost. But it isn’t what they lost, its what they gave away, because back in the 50’s, the Thunderbird consistently outsold the Corvette by ratios of at least 3-to-1.
It is so easy to get sucked into the fads of the day, to respond to headlines, and to forget your fundamental direction. Two great examples come from two of America’s best-known global brands: Disney and Coke.
The Disney Company was built by one of the greatest management teams in US history – two brothers named Walt and Roy. You would have never heard of Walt the animator and dreamer had it not been for his brother Roy, the deal-maker and bean-counter.
As seems to happen, the two men grew old and died. Their in-laws got control of the company, took a look at their big profits, and effectively said, “Wow! Look at these profits! Let’s not take any chances, let’s not take risks, let’s manage what we’ve got and make as much money as possible today.” The company began to slide. It did not go down the tube overnight, because it was a great company. But downhill it went. If you are a movie buff, it is probably sufficient to mention that one of their most successful movies in the 1970s was Tron. If you aren’t a movie buff, never mind – believe me that nothing much happened.
In this environment, some oilmen from Fort Worth, Texas – the Bass brothers – got together with Roy’s son (also named Roy) and took control of the company. They put two new guys in charge – Michael Eisner and Frank Wells – who immediately began to refocus the company on the things that had made it great in the first place. In effect, they said, “We are going to be the world’s greatest maker of family entertainment – the world’s storytellers.” When they began an enormous investment in animated feature films, the experts told them they were nuts and would lose their money – the same thing the experts told Walt and Roy in the 1930’s when they produced Snow White and Fantasia. Whether you are a movie buff or not, I think you have heard of The Lion King, Toy Story, and Beauty and the Beast. Since the Disney Company refocused on its core values, it has risen in value (market capitalization) more than 10-fold.
In Coke’s case, CEO Roberto Goizueta apparently decided that he was a little bored with the colored fizzy water business. He led his company to buy Columbia Pictures and other entertainment companies. In this case, you have to give Goizueta great credit as he later realized his own misdirection, sold those businesses to Sony, and refocused Coca-Cola on being the world’s greatest maker of non-alcoholic beverages. I believe that competitor Pepsi is one of the world’s best-run companies. But the focus of Coke was so fierce that Pepsi spun off its huge restaurant operation (Pizza Hut, KFC, and Taco Bell) in order to focus on being a decent number two in the industry.
I am a numbers guy at heart. I believe that perhaps the most important measure of how well a company uses it resources, the best measure of profitability, is Return on Assets viewed over 5-10 years. By this and other similar measures, Coca-Cola is possibly the most successful major enterprise on earth. Other companies like Intel and Microsoft have generated equally astounding performances, but these companies are mere babes – Coca-Cola is over 100 years old and just hitting stride!
Sometimes I mention this in my speeches and people say, “But Gary, Coke is a household word. Any idiot could run Coke and be successful!” Not necessarily. Idiots did run Bayer aspirin most of the last 20 years, idiots did run Chevrolet, idiots did run Snapple after the innovative founders left. The highways of business are littered with the carcasses of badly run brands. Only by focusing their energies and working very, very hard are great brands built – and kept on top.
Both Disney and Coke are great examples of overcoming adversity and bouncing back from bad decisions, for they had two of the worst business fiascos of the late 20th century. Disney opened EuroDisney outside Paris. While the company today says that this venture is becoming successful, the project lost over $1 billion in its first year. You know that is not what they showed the Board of Directors when they got the green light to build that sucker. And Coke had the infamous “new Coke” fiasco, one of the biggest marketing blunders of all time. But, in each case, the company was strong enough to overcome these “disasters.” That kind of strength comes from knowing what matters.
As I write this, both Disney and Coke stocks are down. Since the second half of 1998, they have each lost over half their value. Like any large organization, these companies are not immune to bad decisions and negative factors coming at them from outside. And they are certainly not immune to the vagaries of Wall Street. If I am right about the long-term strength of these two great companies, investors with a longer horizon than 2-3 years will be rewarded. The same long horizon that the people running these companies have.
When I talk to people about how important a clear and consistent vision is, many say, “But XYZ Company failed because it did not change–it didn’t adapt to the times.” It’s true that success in enterprise tends to breed complacency. When something works, you are reluctant to change it, even in the face of clear evidence that the world is changing around you. But a crucial part — perhaps the hardest part — of building a great enterprise is knowing what to change and what not to change – whatis part of the firm foundation versus what is dynamic, ever-changing, ever-adapting.
Twenty-five years ago I lived in North Dallas, a part of the city that contains its strongest growth, affluence, and retail “action.” At that time, two of my favorite hangouts were Taylor’s Bookstore and Highland Park Cafeteria. Taylor’s was one of the largest independent bookstores in America, with a phenomenal selection of books. It attracted national attention in the bookselling business. Highland Park Cafeteria was rated in the restaurant guidebooks as one of the best sources of good, fresh home cooking. You could dine there or take it home. At lunchtime, the crowds were so large that you had to park blocks away.
Today the people of North Dallas are wealthier and spend more in retail stores than ever. The demand for books has skyrocketed, with giant superstores throughout the area. The talk of the national restaurant industry is Eatzi’s in North Dallas, which offers the highest-quality meals using the freshest ingredients, and you can take it home or eat on the premises. In short, Taylor’s and Highland Park could not have picked a better place on earth to be in the bookselling or restaurant industries. Yet neither Taylor’s nor Highland Park is in North Dallas today. In fact, they are not anywhere. Sadly, they are both bankrupt.
These companies are gone in large part because of their failure to execute their business ideas, their failure to adapt to changing customers. When I first visited Taylor’s, it had the best selection of books in Dallas; it had the longest hours, at least as long as the mall stores; it tied for the lowest prices (all the stores sold at list prices, including Taylor’s); and it had the best service. By the 1990’s, Taylor’s no longer was the “best” in any of these key categories. It was not because Taylor’s had changed, it was because Taylor’s had not changed. Retailers like BOOKSTOP, Barnes & Noble, and Borders had raised the bar for service, for hours, for selection, and for pricing. Taylor’s had quit the race.
At the same time, Highland Park Cafeteria continued its menu assortment of smothered steak, fried chicken, meatloaf, and desserts from the ’50s while the world moved increasingly to creative chicken dishes and mahi-mahi. Today, you have to park blocks away to get into Eatzi’s and pick up your chicken and wine to take home — just like Highland Park in the old days.
Had Taylor’s Books realized that it had the tiger by the tail with its concept of the best service, best hours, best selection, and best prices, it might still be thriving today, in a much stronger national book market. Had Highland Park Cafeteria lived up to its potential as the classic source of great, convenient food, it might be what Eatzi’s is today, the talk of the industry. But these two well-established enterprises could not separate what was really important to their business from the way they did things. They could not accurately separate the essence of their idea from its execution.
The part of an enterprise that does not change is the essence, the vision. Everything else, every aspect of the execution of the idea, every strategy and tactic, every product and every price, is subject to change, sometimes frequent change. When I was in the bookselling business, pop star Michael Jackson’s popularity took off. The publishers rushed to produce books about him. But by the time the books arrived in the stores, the wave had largely passed and it was too late to sell the quantities we had ordered. Your customers change annually, monthly, weekly, daily, even hourly. To serve them well, your enterprise must also be able to change. At the same time, clear and consistent priorities, the heart of vision, must be in place if leaders (and followers) are to know what to change and what not to change.