Way back in 1996 Thomas Stanley and William Danko published their ground breaking tome, “The millionaire next door”.
In it they wrote about the man or woman literally next door. A man or woman who was a millionaire but you’d never know it from looking at them, their houses, and the cars they drove. They weren’t flashy consumerists.
However, what’s less well known is the first in a series by Hermann Simon – “Hidden Champions – Speerspitze der deutschen Wirtschaft”, roughly translated to “Spearhead of the German economy”.
We all know Germany has been the major industrial powerhouse of Europe since WWII. And while major companies like BMW, Mercedes, VW, Bosch and Miele are household names, it’s the almost unknown (that is to everyone except their customers) hidden champions that make up the bulk of the industrial might.
So what makes a hidden champion and how can we emulate their success in Australia?
Defined as number 1, 2 or 3 in the global market or number 1 on their continent by market share, they have revenue of less than $4Billion and a low level of public awareness.
Frankly strikingly similar to the highly successful Australian niche manufacturers I discussed in this article.
So what are some of the common characteristics leading to their success and how could you emulate them?
- They are highly specialised and make something unique or vastly more efficient.
Hi-Cone invented the multi-pack plastic rings used by bottlers like Coke, Pepsi and every major brewery to pack their cans and bottles together. Significantly cheaper than more elaborate packaging, they’ve become a market leader.
Enercon developed wind turbines that are 97% reliable by eliminating unreliable gearboxes. Their competition can only manage 90% necessitating more maintenance costs.
In the mid 80’s Thermoplan developed an automatic cream whipper designed for food manufacturers. By solving a specific problem in a specific industry, they rapidly became world leaders.
- They have deep relationships with their customer base
By avoiding middlemen or agents these organisations stay in constant touch with their end users. They constantly ask what their customers want, take on suggestions for improvement and garner an impressive loyalty from their users.
And you don’t have to be a major manufacturer to do this. Schuh Gade, a shoe retailer in Bern, Switzerland which Barbara wrote about here is an excellent example. The owner’s been visiting his suppliers in Italy around 20 times per year to foster the relationship. And he’s been doing it for 40 years!
- They have extremely stable management
Perhaps unsurprisingly given the German culture, they tend to have an authoritarian top down management approach. The average tenure for a MD is 20 years compared to 6.2 in at the big end of town. In some cases management hasn’t changed in 30 to 40 years.
However, while management sets direction and goals, staff still get a lot freedom to implement. They are encouraged to take responsibility for all aspects from innovation to maintenance of their machinery.
- They have loyal workforces
Loyalty works both ways. These companies are extremely loyal to their employees. When times are tough they try their best to keep staff by reducing working hours or re-jigging holidays etc. They know cycles come around and well trained and loyal staff are one of their key assets.
- Investment in innovation is paramount
Flexi have 70% of the worldwide retractable dog leash market. An extremely hi-tech product where a leash is extended to 10 metres and pulled back via a spring up to 100 times per hour, hundreds of companies have tried to copy their technology and failed.
Flexi keep a very tight leash of their technology and constantly innovate to keep ahead of the pack. (Sorry, couldn’t resist the 2 puns)
However, being hi-tech is not the determining factor in success. Hi-Cone’s plastic rings are anything but. While they may be made on hi-tech machinery, the concept is surprisingly simple. Innovation none the less.
- They avoid social media like the plague
These organisations are “hidden” champions for a reason. Like the millionaire next door they keep under the radar they go about their business quietly and efficiently.
They approach their clients directly without fanfare. And their low profile helps minimise competition and is part of their success strategy.
- Most stick to their knitting
Bonn, Germany based Orgelbau Klais builds pipe organs. For the last 100 years, they’ve been a world leader in their class with organs gracing major concert halls around the world.
And for the last 100 years they’ve had around 65 employees. It’s generally a steady market and the MD believes 65 people allows him to service his clients around the world and weather any market fluctuations without having to ramp or reduce staff.
Orgelbau knows their business, has a world renowned reputation and has no plans to diversify.
However, sometimes you do need to diversify.
With the worldwide popularity of cappuccino, Thermoplan diversified from whipped cream to making an automated milk frother and automatic, modularly designed coffee machines. Starbucks Coffee uses them exclusively around the world, as do Nespresso and McDonalds.
But notice they stayed in the food industry where they already have a reputation for quality and innovation.
- They understand the value they bring to their market and charge accordingly
Value in the product as well as the relationships with their clients, suppliers and employees. This means price never enters the equation. Their customers value what they get and know they can’t easily get comparable quality and reliability from someone else.
How does your organisation stack up in comparison? What do you have, what’s lacking? Where can you improve?
Need outside inspiration and guidance? We’re a phone call away.
Barbara & Rashid.