Reaching for value
Stuart E. Jackson
Stuart E. Jackson is Vice President of L.E.K. Consulting, Chicago, IL, USA.
Ralph Waldo Emerson, American philosopher and sage of Concord, is often misquoted on the subject of consistency. What he actually said was: A foolish consistency is the hobgoblin of little minds, adored by little statesmen and philosophers and divines.
But is that enough?
Sometimes it is not. All too often, business leaders get trapped in their strategic ruts. They develop elaborate plans for where and how to create value (including plans based on the principles of SMP). But then they fail to adjust those plans in light of compelling opportunities that present themselves. They do not take adequate account of near-term market conditions when deciding when to buy or sell businesses. They write off businesses that have disappointed investors, instead of looking for ways to turn these situations to their own advantage. They worry too much about shareholder reactions to new initiatives instead of doing what is needed to build value. They fail to combine their thoughtful business strategy with a willingness to go against the crowd, buying low and selling high. You could say that, despite all their good intentions and great planning, they fail to behave like capitalists. Not all business investors have these failings. Besides working with many corporate clients, I also work with dozens of private equity ﬁrms. With the recent rapid expansion of private equity investing, there has been much speculation about the sustainability of this investment model and the level of returns that can be expected from these ﬁrms in future. Even so, private equity ﬁrms provide some of the best examples of what I call ‘‘strategic opportunism.’’ Need a good example? How about a company that has been bought and
And then he added one more thought:
With consistency, a great soul has simply nothing to do.
There is wisdom here for business executives. If you read between the lines, you can see that Emerson is endorsing what might be called a ‘‘wise inconsistency.’’ In other words, he argues for both a systematic approach to the world and a systematic way of breaking out of that worldview when opportunity comes knocking. As I have explained in previous columns in JBS, I am an advocate of rigorous customer and competitor research leading to thoughtful, systematic growth that builds on your core businesses and established strengths. In fact, that approach is at the heart of a discipline I call ‘‘strategic market positioning’’ (SMP). Put simply, SMP is about getting bigger in businesses that lie within your competitive sweet spot while avoiding businesses that put you at a big disadvantage against larger scale competitors. Depending on whether you are the equivalent of General Motors or Ferrari in your industry, that may mean you go after the whole market or limit yourself to a narrow niche.
JOURNAL OF BUSINESS STRATEGY
VOL. 29 NO. 1 2008, pp. 46-48, Q Emerald Group Publishing Limited, ISSN 0275-6668
sold by both private equity and corporate owners? What can we learn by contrasting the actions and relative successes of these two ownership models, as applied to the same company? In the early 1990s, Snapple Beverage Corporation (founded in 1972) was an innovative, fast-growing drinks company that was doing everything right. It had only limited penetration in the supermarket channel – 20 percent of its 1993 sales – but had great success in the so-called ‘‘cold channel’’ network of small independent distributors who serviced hundreds of thousands of mom-and-pop stores, lunch counters, and delis. Following the principles of SMP, it resolutely stayed out of the channels dominated by the likes of Coke and Pepsi. The market took note. In 1992, the Boston-based private equity ﬁrm Thomas H. Lee Company led a leveraged buyout of Snapple for $143 million and...
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