Why do large companies fail? This question always bothered me as these firms have access to abundant resources and tech knowhow, but why does "consistent growth" elude them?
Only 12% of the 1955 Fortune 500 companies were on the list in 2015, and nearly 88% of the companies from 1955 have either gone bankrupt, merged with (or were acquired by) another firm, or they still exist but have fallen from the top Fortune 500 companies. Source: American Enterprise Institute.
In India too, over a ten year period, the Sensex churns by around 50% i.e. of the 30 stocks in the Sensex at the beginning of a decade, only 15 are left by the end of it. Source: Ambit Capital.
After reading Peter Thiel’s book, I have got many answers to my question on consistent business growth. In times to come, this book will recognised as a great "classic”. I was told this book is relevant for start-ups and but I believe it’s highly relevant to large firms too. His notes on "how to build a future" may salvage many large firms.
His 7 questions that every business has to answer, unravels the perception of every business model. They are proprietary technology, the timing of business, market share, people , distribution , durability and the last is the "secret" question. I wish, all the promoters & CEOs read this as this may save lots of dollars. It’s so relevant in the current context of global economy.
If we were to start analysing companies based on these 7 qualitative parameters – I am certain many companies may fail in these parameters hence may not be around after few years. For Instance regarding distribution - I spent more than 15 years in Mutual Fund Distribution , I completely related to his perspective on “distribution” and its significance for the success of a firm. I found his approach very pragmatic - superior sales and distribution team can create a monopoly without a product differentiation.
His viewpoint on business success is attributed to luck or skill is sharp. His stance on of how firms operate in "Indefinite Optimistic" mode is shrewd. If one analyses this philosophy, here the business simply believes the future will be better, but it doesn’t know how exactly to get to this mode , so no specific plans.
Now if we were to look around the companies which operate in this mode - there are plenty without a specific plan and eventually may disappear. To my mind, some of the new firms entering into manufacturing of smartphones are in indefinite optimism mode. They may be believing that surge in demand of smartphones in future will invariably rev up their product sales.
"Secrets" section of this book is worth reading many times as it is profound. Generally most of us operate in a mode of "I know all". He says most people think only in terms what they have been taught. There may be place to look for business opportunities where no one is looking. Companies may be seeking & working within their experience boundary akin to a personal computer - seeks & reads file from existing files & folders.
