“You don’t need a weatherman to know which way the wind blows.” - Bob Dylan, ‘Subterranean Homesick Blues’
Yuma, Arizona is considered to be one the sunniest place on earth. The duration of bright sunlight is more than 4,000 hours annually. That works out to about 91% of daylight being unencumbered sunlight.
The temperature fluctuates from day to day. But one thing is fairly certain in Yuma: it’ll be hot and sunny. Every. Single. Day. Year after year.
Even a bird-brained musician, such as myself, with no meteorological knowledge, could accurately predict the weather 91% of the time. As an investor and entrepreneur I like those odds.
All forecasts are futile, except this. Consistency matters.
Intelligent fanatics build organizations that execute year after year at the highest level. They execute as consistently as the sun shines in Yuma, Arizona. They’re successful when the economy is doing well, and they thrive when the world around them starts to crumble. Also, they tend to be luckier than not.
Let me give you some examples.
In 1987, Winona, Missouri based nuts and bolts distributor Fastenal went public. This wasn’t any ordinary public offering. Fastenal had achieved profitable growth since 1971. The company’s only losses were the first three years of operation when Fastenal co-founders were figuring out the business model.
Sixteen straight years of growing profits is a good indicator: the company was doing something correct. Could they repeat their success?
Looking a little deeper, the answer was clear. The business model was based on a large need serviced by a philosophy of win-win relationships. “Growth Through Customer Service” was the company’s driving force and co-founder/CEO Bob Kierlin’s smart frugality permeated throughout the company. Fastenal would grow its annual profits 29 out of 31 years, or 93.5% of the time.
Mort Mandel founded industrial part and electronic distributor Premier Industrial Organization in 1940. During Mort Mandel’s 36 year tenure as chairman of Premier Industrial Corporation, the company had 34 years of profitable growth. In other words, Premier Industrial Corporation grew its profits a sweltering 94.4% of the time.
Mort Mandel understood and empowered his employees to leverage velocity at the highest level. This story encapsulates Premier’s culture, again based on win win relationships, which allowed them to grow profits so consistently.
Al Ueltschi founded business aviation training firm FlightSafety in 1955, and earned a net profit of $277.41 its first year. From 1971 to 1995, the company grew annual profits 23 out of 25 years. Although data isn’t available for prior years, I don’t think it is a stretch to assume that FlightSafety grew its profits at a similar rate of >90% of the time from 1955 to 1970.
Al Ueltschi rode a wave in the overall aviation industry but, most importantly, Ueltschi infused a commitment to providing the best flight instruction paired with the latest and greatest simulation technology. Read more about how Al Ueltschi built FlightSafety here.
Before Walmart began trading as a public stock in 1970, Sam Walton had already established a phenomenal 25-year track record of winning. Nearly every year since 1945 - be it operating Ben Franklin stores or his own stores - Walton grew his stores’ revenues and profits. After Walmart went public, nothing changed. Walmart grew revenues and profits every single year until 2014!
Before Home Depot went public in 1981, Bernie Marcus had already proven himself as an operator. He had grown the Handy Dan chain from twenty-eight home improvement centers to eighty. Earnings went from $1.5 million in 1972 to $7 million in 1976. Despite a year and a half of start-up losses, Home Depot would soon turn a profit.
Home Depot would grow annual profits in 23 out of the next 24 years. Bernie Marcus, Arthur Blank and Pat Farrah did it by creating a win-win culture based on the Home Depot Holy Grail. Even David Glass, Walmart CEO from 1988-2000, said Marcus and Blank were “running the best retail organization in America" in the early 1990s.
Not every intelligent fanatic led organization was able to attain >90% profit growth over their lifetime. Some companies, such as the ones below, operate(d) in times and/or industries that were more difficult. Still, those companies executed consistently. They, too, acted differently than the crowd. They grew into large markets with win-win based cultures.
Company (Years of Operation/ % of YoY Profit Years):
- Nucor (30 yrs: 74%)
- Southwest Airlines (37 yrs: 73%)
- Marks & Spencer (38 yrs: 80%)
- Piramal Enterprises (30 yrs: 70%)
- Shriram Transport & Shriram City Union (22 yrs: 77%, 20 yrs: 85%)
- Costco (33 yrs: 75%)
Other Execution Yardsticks
Growing profits is one measure of success. There are other yardsticks for execution.
Amazon didn’t reach profitability until its 8th year. And since that point, Amazon’s profitability has gone up and down like a teeter totter as it has reinvested heavily. Still, Amazon has never budged from it’s guiding principle: hundreds of thousands of Amazon employees have come to work every day with an unrelenting customer obsession. This has led to numerous customer satisfaction awards and a growing graveyard full of competitors.
Airbnb didn’t reach profitability until recently, 10 years after being founded. Yet, as Brian Chesky said here the single most important advice was “it’s better to have 100 customers that love you, than a million customers that just sort of like you.” Airbnb has consistently gone above and beyond what customers expected. And Brian Chesky laid out his vision of building Airbnb to have an infinite time horizon and to serve all of their stakeholders.
Just as the sun in Yuma, Arizona repeats itself with near clocklike regularity, if you find a business leader with a similarly sunny track record, bet on it continuing.
Warren Buffett added the following baseball analogy:
“If you’ve got somebody that’s been batting .400 all their life, and fortunately age doesn’t change the picture, in terms of business performance, and they love what they do, it’s going to work.”
In business and investing it’s not what you do randomly that will produce long-term returns; it’s what you do consistently. As investors it’s important to partner with intelligent fanatics because they make your job as brainless as being the weatherman in Yuma, Arizona.
If you want to be an intelligent fanatic yourself and build up your pattern recognition in finding these leaders early, join our community.
This is a companion discussion topic for the original entry at https://intelligentfanatics.com/consistency-matters/