How do you grow from being a million-dollar-revenuecompany to a billion-dollar one? David G Thomson, a former executive with Hewlett-Packard and McKinsey, believes there are "successful patterns" followed by these companies.
Thomson, author of best-seller "Blueprint to a Billion: 7 Essentials to Achieve Exponential Growth", spent three years building a quantitative model that uncovered a pattern followed by 387 companies, 5 per cent of all American companies that went public since 1980 and grew to have billions of dollars in revenue. But these "Blueprint companies", such as Microsoft, Google and Starbucks, account for two-thirds of the market capitalisation of the stock markets in the United States.
Before conducting the research, Thomson thought most of these Blueprint companies would have been hi-tech organisations. But he was surprised when he learnt that consumer-discretionary companies have led the pack (102 companies), followed by information-technology organisations (69), finance (57) and healthcare (52).
"For the past 25 years, there have been few new companies in energy," he said.
Thomson later conducted similar research on the global market and found US organisations leading the world in the number of companies that grew into billion-dollar organisations in revenue, followed by China and Japan. Thailand is in the world's top 20, with 33 such companies that grew in the past five years, he said.
In Asia, industrial and material companies lead the pack. The third-largest industry with the most number of new billion-dollar companies is not technology, but consumer-discretionary organisations - thanks to a rising middle class in the region.
Globally, there are, on an average, 175 companies that grow into billion-dollar organisations each year.
Looking ahead, Thomson believes many of the next billion-dollar companies will be in the energy sector.
"Energy companies have huge opportunities in Asia. There is a huge white space because energy is a global problem now - if you can come up with a breakthrough technology to solve global warming or tackle the energy crisis," he said.
Like Stephen Covey's "Seven Habits of Highly Successful People", Thomson has found seven management practices that enable corporations, independent of the industries they operate in, to achieve high exponential growth if they apply at least five of the "seven essentials", which are:
'Way better' value to customers: This means companies deliver benefits not "features" to customers. Starbucks, for example, "customises" coffee for you. For an engineer, like Thomson, coffee is just 95 per cent water, but Starbucks manages to sell customers the feeling of a good-coffee experience.
Exploit high-growth-market segment: Unlike the Blue Ocean concept, Thomson found most high-growth companies grow in mature, not emerging, markets. There were already many companies selling coffee before Starbucks came in; Nike redefined the running-shoes market; Google, likewise, redefined the advertising market.
"You don't have to invent new markets. You may come up with a new car or drug. Healthcare is one of the largest markets in the world, independent of countries," he said.
'Marquee customers' shape the revenue powerhouse: Blueprint companies have customers selling to them, not just buying from them. Among the examples of these companies are Apple and eBay (which has created "power sellers").
Leverage 'big-brother alliances' to break into new markets: Microsoft grew from a small company through its alliance with the Big Blue, likewise did Yahoo with AT&T, and eBay with AOL. Procter & Gamble also partnered with small companies, such as Mr Clean, helping them expand into new products.
Become the masters of exponential returns: Blueprint companies were profitable early on and reinvested the profit into growth. They have no long-term debt. In an exclusive interview to The Nation, Thomson said borrowing to expand business may be true until your revenue reaches US$25 million (Bt837 million). "Companies such as eBay, Google and Cisco reinvested their profit to grow. They didn't take on long-term debt."
Management - 'inside-outside' leadership: Many successful companies are run by a pair comprising the outside-facing and the inside-facing leaders. The outside-facing leader is focused on "big-brother alliances", "marquee customer" relationships and sharpening and defining value propositions. The inside-facing executive is primarily focused on operations. This is a blind spot for many entrepreneurs who want to keep control of the business.
"The implications are for entrepreneurs or small companies - in case you don't have the other half [leader]. Not [just] one chief executive or entrepreneur who does it all. You can't be in the office and visit customers all at the same time," Thomson said.
The board comprised of essential experts: Thomson said he found that companies whose board of directors were dominated by investors and the management team tended to struggle. On the other hand, companies that had on their board customers, alliance partners and the chief executive or an experienced management that built the organisation prospered.
At a glance
Notes from the billion-plus club:
At present, US organisations lead the world in the number of companies that grew into billion-dollar organisations in revenue.
Thailand is in the world's top 20, with 33 such companies that grew to be billion-dollar organisations in the past five years.
In Asia, industrial and material companies lead the pack.
Globally, on an average, 175 companies grow into billion-dollar organisations each year.
