Eight lessons from hidden market champions
Few business people realize that the number one exporter in the world in 2008 was not China, Japan or the U.S.
The number one exporter was Germany — because of the many small and medium-sized German businesses which are ranked in the top three in the world in their industry.
These are the “Hidden Business Champions of the 21st Century,” as reported by Hermann Simon in his newest book by that name, and include firms such as Delo, which provides special electronics for smart phones; Baader. the leader in fish dissection systems,:and Lantal, experts in airplane interior design.
Hermann Simon shared during the recent Fortune Small Business Growth Summit, “The champion firms include 1,200 market leaders with an annual growth rate of approximately 10 percent which have generated over 1 million jobs and waves of innovation.”
These firms share the following characteristics:
1. Set ambitious goals and aspire to be nothing less than world-class. Their will, or passion to be the best, is the most important characteristic.
2. Fully focus and concentrate on what must be mastered. The key is to avoid distraction. Successful firms Uhlman and Flexi, for example, state: “We only do one thing.” They go deep, not broad, by refraining from outsourcing any core competencies, outsourcing non-core activities, conducting very secretive R&D, and avoiding strategic alliances.
3. Expand regionally and internationally using product know-how. Rather than going into unknown business areas, they go global with what they know well. They follow their customers everywhere.
4. Innovate continuously and in small steps: it is the only way to sustainable market leadership. The hidden champions spend at least twice as much on R&D than the typical average and many times much more. Over 65 percent of these firms say both the market and technology are important factors of innovation.
They average five times the number of patents per 1000 employees while cutting the cost per patent to one fifth the average. Brains are more important than a certain budget. They have continuous improvement, rather than breakthrough innovation. They are speedy in bringing new innovations to market.
5. Stay really close to your customers. These firms average five times as many employees having regular customer contacts. They stay very close to demanding customers who drive performance and innovation. This factor is the number one strength even over technology and quality.
6. Pay attention to clear competitive advantages. Quality still counts. Their strategies are value-driven not price-driven. They typically price at a 10 to 15 percent premium. The most important competitive advantage is quality, innovation, and service, not price. For example, advice and system integration can not be imitated and reside in the quality of employees.
7. Hire quality people and retain them. Avoid high employee turnover. These firms have more work than people. They have a high performance qualification standard. The hidden champions average 2.7 percent turnover per year, while the USA averages over 30 percent turnover. When employees leave, they take know-how with them.
8. Lead authoritarian in the principle and flexible in the details. These firms do not compromise on their values. They are predominantly self-financed with only 8 percent having private equity and 66 percent family owned. Many CEOs come into power young, have high continuity, and many more on average are female.
These simple guidelines have led many small and medium-size firms to market leadership. It takes a long term perspective. Make sure you passionately pursue your purpose with never-ending perseverance.