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Soundview Executive Book Summaries
The odds are one in 50 that an idea becomes a business, one in 20 that a funded business sees an initial public offering (IPO) and, finally, one in 20 that a public company achieves $1 billion revenue. What does it take to become a billion-dollar company? David G. Thomson answers this question in Blueprint to a Billion by looking at 387 of American's fastest growing "Blueprint Companies" compared with 7,454 companies that went public since 1980. Whether the company deals in chemicals, clothes, technology or financial services, Thomson outlines seven essential components the top companies shared.
Essential #1: The Blueprint Value Proposition. Every Blueprint Company had a compelling value proposition founded on the delivery of a breakthrough set of customer benefits. They didn't reinvent the wheel, but their products and services came close, and were aligned with the needs of the outside world. The best Blueprint Companies fall into one of the following three categories: "Shapers of the New World" (57 percent) unlocking new products and services; "Niche Shapers" (33 percent) with products or services redefining a specific market segment; and "Category Killers" (10 percent) that optimize a market by attacking the existing incumbents with a better-faster-cheaper value offer.
Essential #2: Exploit a High-Growth Market Segment. Fresh industries such as biotechnology and Internet retail spawned multiple Blueprint Companies in the 1990s. Still, industries such as specialty stores generated the highest number of Blueprint Companies with 18 firms.
Essential #3: Marquee Customers Shape the Revenue Powerhouse. Customers can be more than customers, and the best of them can serve as an extension of your sales force, says Thomson. "Marquee Customers" shape the company by testing and deploying the product, recommending the company to their peers and providing exponential revenue growth.
Essential #4: Leverage Big Brother Alliances for Breaking Into New Markets. The complement to a Marquee Customer relationship is a "Big Brother-Little Brother" alliance. When a big company helps a smaller one, it provides credibility to Little Brother. For example, Microsoft had IBM; Siebel had Microsoft and Andersen; eBay had AOL; Genentech had Eli Lilly and Yahoo! had AT&T WorldNet.
Essential #5: Become the Master of Exponential Returns. Blueprint Companies have unlocked four key principles to creating superior value:
- Create attractive gross margins early.
- Contain expenses to achieve more than 20 percent earnings before interest, taxes, depreciation and amortization (EBITDA).
- Become cash flow positive early.
- Utilize incremental gross margins to self-fund incremental investment.
Essential #6: The Management Team — Inside-Outside Leadership. Among Blueprint Companies, "dynamic duos" drove many of the star-performing companies. These are two individuals who worked tightly together to build the firm from dreams to $1 billion in revenue. Leadership characteristics that distinguished the inside-outside pairing include consistent communication about the company's direction. The outside-facing CEO possesses a forward-thinking style critical to proactively developing Marquee Customers and Big Brother alliances.
Essential #7: The Board — Comprised of Essential Experts. Blueprint boards are not packed with investors. They recruited customers, alliance partners and other Blueprint CEOs for their boards. Also, consider strategic cross-board relationships between Blueprint Companies, says Thomson. At a high point of the Internet, Tom Stemberg recruited eBay's Meg Whitman to join the Staples board, for example.
Blasting into orbit is similar to what Blueprint Companies experience as they hit their inflection points and stretch skyward in growth, according to Thomson. The linkage of the seven essentials provides a growth boost that he compares to the second stage of a rocket pushing the space shuttle in orbit. When you put the essentials together, they are more than the sum of their parts. Linking them, says Thomson, creates the dynamic "1 + 1 = 3."
Finally, it's important to step back from all the strategic, financial, leadership and governance issues around Blueprint Companies and consider the company culture implications. High-performance organizations can be extremely challenging to work in — the human cost in the form of personal and mental health, shortened job tenure and strains on family can all add up. And a few Blueprint Companies had reputations for rapidly turning over teams if they failed to meet the numbers. But the best Blueprint Companies were, according to Thomson, the ones with a high-performance focus and a nurturing environment. Copyright © 2006 Soundview Executive Book Summaries