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Financial Freedom Is Merely Organized Common Sense
Big Businesses Evolve Product
Have you ever considered how large businesses got to be large? It is actually easy enough to see. The commonality of their growth are quite similar.
The top ten by value
The ten largest businesses in the United States by the market value are
- Apple, Founded in Steve Jobs’ parents garage with Steve Wozniak and Ronald Wayne in 1976
- Microsoft, founded by Bill Gates and Paul Allen, restructured as Microsoft in 1975
- Google, founded in 1998, by Larry Page and Sergey Brin while they were Ph.D. students at Stanford
- Amazon, Founded by Jeff Bezos in his garage in 1994
- Tesla, founded in 2003 by American entrepreneurs Martin Eberhard and Mark Tarpenning. Elon Musk joined in 2004
- Facebook, Mark Zuckerberg invents in a student residence in 2004
- Nvidia, Founded By Jensen Huang, Chris Malachowsky, And Curtis Priem In 1993
- Berkshire Hathaway – The Warren Buffet Holding company expanded into insurance and other business in the late 1960s
- JP Morgan Chase, formed in 1799 “is built on the foundation of more than 1,200 predecessor institutions” from JP Morgan History
- Home Depot, Bernie Marcus and Arthur Blank dreamed up The Home Depot from a coffee shop in Los Angeles in 1978
What can we learn from them?
Growth by acquisition
Berkshire and JP Morgan both became large by acquisitions. Many if not all of the others employ the same strategy. It is less costly and less risky to buy innovation and talent than it is to grow it. Do you wonder why there are no immediate successes that started after 2005 or so? You should. What dominant companies have arisen since 2006. The only one I see is Shopify at around $US 200 billion. About Intel (42nd) size.
The risk in that is that innovative new products and processes begin very small. Look at the other eight. Bureaucracy is not your friend when you are innovating. Why do large established companies fail to innovate? two reasons, — 1) In the intermediate run, they don’t need to, 2) they have products in the market that make money now, why disturb that. Incremental improvement will do for now.
A new product, process or recognition
Breaking into the consumer’s mind is what makes them successful. The best offer something not seen before. Apple and personal computing. Microsoft with software to run personal computers, Tesla with an approach to CO2 minimization. Google with efficient search of the then new internet, Amazon, and Home Depot with a different merchandising approach, Facebook with a way to connect using the internet. Nvidia dominated graphic cards. Until then screeds were mostly green text on a black background.
In all those cases, except maybe Google, customers didn’t know what they wanted. It was and is as Henry Ford pointed out, “If I had asked people what they wanted, they would have said faster horses.”
Whatever new product or service you offer, it must be surprising (like the effect of the first graphic cards) useful, cheaper, and easily available. The hard part is capturing the attention of the consumers. Without inexpensive, surprising, and useful, it will be difficult to establish a customer base.
And – You must be able to sell it for enough to cover your costs.
Development.
Ideas are not especially valuable. Many businesses had products similar to what early Microsoft, Apple, Google, and Facebook offered. Implementation is the hard part. For many innovators, that’s why being acquired by a business with execution skills makes sense. Fitting in to a product line is quicker than building a customer base. Not many people have both inventor skills and business executive skills.
It is not getting easier. There may not be any young and innovative businesses that grow from a garage to market leader. Look for ones with some of the characteristics and hope they are the survivor in the category. Keep in mind that a similar business, maybe not as good, acquired by a large capable company, could dominate.
Bits to take away.
A small group of founders working in a garage could dominate a new market. No big company will do so. Why would they obsolete an existing and profitable product line. Do you think Duracell is trying to create a revolutionary product for the consumer small battery market?
Large businesses look for acquisitions that deny competition to their offerings, provide an entry into a new market, and bring unique talent on board.
From the first sign of potential, it has taken ten years or more, (more than 25 in Apple’s case) to show capability of domination. By then the original idea will have evolved to the point it is barely recognizable.
When investing, tiny amounts in the new may be good, but today most have been captured by the big players or the venture capitalists. By then, you are looking for the ones with the best business capability not the most revolutionary product.
Big businesses refine product, they don’t create new.
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I build strategy and fact-based estate and income plans. The plans identify alternate ways and alternate timing to achieve both spending and estate distribution goals. In the past I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning, have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, Banks – from CIBC to the Business Development Bank.
Be in touch at 705-927-4770 or by email to don@moneyfyi.com
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