Built-to-Thrive - The Standard Bearers: Apple, Google, Amazon

By Mark Sigal
May 18, 2009 | Comments: 6

Thumbnail image for Gold-Pyramid.jpg

When you think of companies that are not only built to last, but rather, built to thrive - in boom times and tough times; in times when incumbents rule and times when disruptors rule - what companies logically sit at the top of the pyramid?

Equally important, what should be the criteria for assessing them?

Beginning with the second question, let me propose a straw man for assessing the "Built-to-Thrive" bunch:

  1. Differentiated Products: the company's core offerings are not commoditized relative to the competition, which gives the company pricing power.
  2. Diversified Revenue Sources: the company's aggregate revenue is split up across multiple lines of business.
  3. Depth of Product Pipeline: the company's R&D engine is healthy, delivering with regularity and predictability not only new commercial-grade products, but also new revenue sources that favorably impact the bottom line.
  4. Quality/Depth/Durability of Management Team: the company's management team is high-caliber, the "bench" is deep, and top management tends to stay at the company for the long haul.
  5. Operating Margins: the company exercises stringent fiscal controls and operates within prescribed operating margins.
  6. Profits: the net effect of the above is a highly profitable business.
  7. Cashflow: the business generates positive cashflow and lots of it.
  8. Cash Reserves: the company has ample cash reserves to weather storms, accelerate R&D, up marketing spend or M&A activities as needed.
  9. Healthy Balance Sheet: The balance sheet is not weighted down by debt, uncollectible receivables or other financial engineering that hobbles the company.
  10. Well-defined Corporate Culture: Employees know what the company stands for, how that drives decision making, prioritization thinking and it serves as a unifying force within the company.

Based on the above criteria, the following are my Gold, Silver and Bronze standard-bearers:

Apple is the Gold Standard
Thumbnail image for apple logo blue.pngIt should be no surprise to readers of this blog, that I put Apple at the top of the pyramid, inasmuch as they do spectacularly well on all of these criteria, save for a perceived dependence on Steve Jobs (gut: we'll find out soon enough if perception is reality) and an uncomfortable (for me) proclivity to mislead/abuse press, partners and investors on fringe items (Exhibit A: matters pertaining to health of Steve Jobs).

Google is the Silver Standard
Thumbnail image for google_logo.jpgFrom Search to Keyword-based Search/Display Advertising to Gmail, Maps, YouTube, Earth, Desktop and Maps for mobile, Google does very well in a lot of categories, has achieved a dominant position in a couple of others, and runs a very profitable enterprise. Some recent brain-drain and a failure to materially diversify revenue sources must be counterbalanced by a strong corporate culture, the courage to dive aggressively into new markets (e.g., mobile devices via Android) and a recent increase in fiscal discipline; most notably, the maturity to feed the winners and starve the losers product-wise.

Amazon is the Bronze Standard
Thumbnail image for AmazonComLogo.jpgAmazon has so totally reinvented retail, and its model is (somewhat) category independent that, combined with a relentless focus on customer satisfaction, their foundation is solid. No less, Bezos and company have built a platform that enables third-party merchants to plug into their technology infrastructure, their consumer base and their physical fulfillment capabilities. Plus, they are pioneering cloud services (via Amazon Web Services - Elastic Compute, Mechanical Turk) and reinventing the book for the digital age (via Kindle). Finally, they have a very strong, healthy culture, subject to the caveat that Jeff Bezos so overshadows his executive team that they are in a similar bucket to Apple with Jobs, and their fiscal discipline seems to ebb and flow based upon real-time reads of the market.

Cisco: Close, But No Cigar
Thumbnail image for cisco_logo.jpgWhile Apple, Google and Amazon regularly swing for the fences on the innovation front, all the while protecting and nurturing their core businesses, Cisco tends to "talk" about swinging for the fences; namely, wholly new services that combine voice, data, video and information. In practice, however, they feel more like they are in the "ingredient" business when they need to be in the "recipe" business. In other words, while they are the unquestioned leader in networking gear, have a tremendous sales organization, and are aggressive on marketing spend and on the M&A front (e.g., Cisco's Consumer unit bought Pure Digital, makers of the consumer-friendly, Flip Video video camera), they seem to be more rhetoric than revolution these days. They are IBM, which has its merits, but the downside is that they no longer feel like a game-changing company.

Am I Showing a Consumer Bias?
Maybe I am showing a pre-disposition to favor consumer-oriented companies in my Gold, Silver and Bronze selections, but that is also a reflection of a core belief that post-tech bubble, innovation flows from the consumer realm back to the enterprise, and not the other way around (i.e., the enterprise is a follower, not a leader, in adopting technology innovation).

As a result, this tends to make companies focused on the enterprise segment less dynamic in terms of their cultural and operational DNA. This obviously can change if and when enterprises embrace technology innovation with greater fervor than they have in recent years.

Who Else? Who Did I Miss?
Did I miss anyone obvious, especially outside of tech? Who looks better than these three companies on a long-term basis in terms of differentiated products, diversified revenue sources, depth of product pipeline, quality/depth/durability of management team, operating margins, profits, cashflow, cash reserves, balance sheet strength and strong corporate culture?

Related Posts:


  1. The Chess Masters: Apple versus Google

  2. Metrics of Success: You can't improve what you don't measure

  3. Holy Sh-t! Apple's Halo Effect: how Apple has turned gravity into its friend


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6 Comments

nice article... but where are the facts? Apple as a gold standard??? A company that sells cheap products in a gold wrap and at the same time deletes posts from their site with bad opinions about their products is a gold standard?

Enough of that... Translation of the article:
I have a mac, I use gmail, I buy stuff on amazon and I've used or use Cisco!

Actually, I don't use Gmail but your response is pretty simplistic.

I cited pretty specific facts whereas you cite none (show me a quantitative/qualitative counter to items 1-10), other than a knee jerk to dismiss Apple because you think they are smart enough to hoodwink consumers, who must be "fooled" into buying iPhones, iPods and Macs again and again and again.

Translation: you don't like a company because it doesn't fit your sense of the universe, but rather than either acknowledge your subjectivity or argue objectively based on data, you just diss the messenger.

Sweet graphic. Where'd you get the criteria?

Hi Todd,

Thanks for the note. I cobbled the graphic together from a bunch of graphics. As to the criteria, it is what I use when I assess investments, segments and the like.

I like it for the simple reason that it is both heuristic and measurable (with exception of assessments of culture and e-team, which is clearly subjective).

Regards,

Mark

your straw-man criteria is fairly arbitrary but even using that, omitting Microsoft is petulant on your part.

Surely you are not so biased that you can't see that MS has many more products in the pipeline, and is more competitive on so many more fronts than Apple that there is no comparison in real-world terms between the two companies: One is a boutique computer company propped up by device sales (iPhone, iPod), the other scales from client to enterprise. Why do you ignore market share?

If you think OSX is not a commodity but Windows 7 is, then you are delusional.

As for Google: Advertising rises and falls w/the economy, and they're about to get comeuppance and pay for syndication of news just like real companies do.

@mcmCPH, thanks for the note, and the push-back. As to the Microsoft exclusion, that is a fair knee jerk on your end.

Five years ago, MS would have been the PLATINUM standard, no doubt. In fact, if you have read past blogs of mine, such as 'Holy Sh-t! Apple's Halo Effect' (referenced above in this post), you know that I consider Apple to be executing Microsoft's PC strategy for the Mobile Media Device and Services era.

Now, specific to Microsoft's current world, I consider their vast footprint both a strength (they will be HUGELY profitable for the foreseeable future) and a liability (their reliance on the enterprise has accelerated product bloat, pulled them further from the consumer and led to a much slower R&D cycle).

Their core lines of business - Windows, Office, Back Office - look like legacy and must be supported as such.

As anyone who builds products knows, the cost and complexity of supporting legacy grows exponentially over time, something that I believe has created entropy within the company.

(If you REALLY want to disagree with me, read my post comparing Microsoft's legacy pull to the collapse of communism - http://thenetworkgarden.com/weblog/2007/03/microsoft_and_t.html).

The company has had serious brain drain (this is no longer Bill Gates' embrace/extend/extinguish serial killer of a company, unfortunately); has misread the media device, mobile device, online services, search and online advertising markets, and as such is a decided third tier player in each of these segments.

To your OSX v. W7 comments, I don't disagree with the basic premise that the OS itself is a commodity or presume that Apple will ever be the dominant player in the PC realm. Too much gravity in Microsoft's favor and too little long term growth in that segment.

Plus personal computing is largely a homogeneous platform, lending itself to abstraction of hardware, software and service layers.

Going forward however (3-5-10 years?), I expect more of the game to be about integration, usability and workflow, which requires the kind of coupling of the various hardware/software/service layers that is a core strength of Apple's.

After all of this stuff gets commoditized, then maybe some of those unfair advantages start to dissipate and gravity shifts back to Microsoft's benefit, but based on my above comments, I am not convinced that they have the same execution orientation to lead.

Re Google, I framed their greatest risks, and time will tell on that one.

When you say my criteria is fairly arbitrary, what criteria should I have used in your opinion?

In any event, good forceful, constructive pushback is appreciated.

Mark

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