Duane Kirkpatrick
Aug 31, 2018 · 6 min read

LENGTHENED SHADOWS

The genius of successful entrepreneurs arises from a trust in their own judgment to make vital choices affecting not only themselves but all players in the cast and in the audience. Success requires an energetic disruption of some established norms. Refusing to conform to societal expectations may also require the willingness to renounce previously held opinions. Ralph Waldo Emerson told us that “a foolish consistency is the hobgoblin of little minds. To be great is to be misunderstood.” He also said, “Nothing great was ever achieved without enthusiasm.”

For each organizational success, there is a singular champion with the courage to be the leader. The leader will have the passion to follow his path at any cost. The path will be ill-defined with many choices to be made, not all of them fortunate. The leader will not dwell on failure but will instead arise after each fall with the belly-churning determination to meet the next challenge. The leader will commit all his personal efforts to the task of inspiring a universal dedication to achieving the common goal. This is not a part-time job.

Ralph Waldo Emerson wrote in his essay on Self Reliance, “An institution is the lengthened shadow of one man…all history resolves itself very easily into the biography of a few stout and earnest persons.” Emerson believed that all the familiar organizations (religions, empires, companies, etc.) were each shaped by the actions of one person. Emerson also wrote that “a man should believe in himself and when a man has an original thought, he should embrace it and make it known to others rather than reject it simply because it is his own and therefore unworthy.”

American society celebrates the creative and leadership characteristics displayed by the hardy souls who start new companies. However, the large majority of those new companies does not survive, let alone become enterprises with enduring qualities that remain in play long after the founders have left the stage. Some companies grow rapidly and become large quickly; others are more conservative but demonstrate consistently good profits and pay attractive dividends. Either type may be found in portfolios of institutional wealth managers. The one constant in the process of selecting companies for investment purposes is the potential for survival. Over time, the consistent single measurement of continued success is the total value of all outstanding shares of common stock. In the investment business, analysts call this market capitalization. Here, we call it the lengthened shadow.

Curious visitors have asked what it takes to succeed in building a new enterprise. Our search reveals that there must be a combination of personal excellence (nature and nurture) of the founder (s) and a fortuitous confluence of technical and commercial events navigated with flawless timing. There is no evidence to support the theory that working for a large company prepares one to grow a start-up into a large company. In summary form, we propose here a menu of the ingredients for success to answer the questions of a curious visitor:

The founder must be an expert in his field.

The founder must be in the right place at the right time with disruptive technology.

The founder must execute his vision and demand buy-in from all stakeholders.

The founder and others must be compensated with equity ownership of the enterprise.

The Company must produce a stream of new products that disrupt the norm.

The founder must be prepared to bet the company on a major strategy change.

The Company must achieve and maintain a dominant market position.

The founder must fashion and share widely a rational management succession policy.

There is ample evidence that a successful shadow builder must be an expert in his field. Especially in a technology dependent company, the leader must be willing to invest the time and effort required to be ready to play on the world stage at the highest level of the game. Malcolm Gladwell claims in his compelling book Outliers that while innate talent is necessary for outstanding success, it is not sufficient. Talent, yes; but, also preparation time. Gladwell’s research suggests that no matter what the discipline or profession, outstanding individual performance requires the accumulation of at least 10,000 hours of practice before the age of twenty. We cannot claim that all of our shadow candidates were diligent in meeting their hourly quota on that precise scale. We have found that a consistently shared characteristic is the early expenditure of an extraordinary amount of time improving those talents that come naturally.

Clayton Christensen introduced the idea of disruptive innovation that helps create a new market by displacing an earlier technology. In contrast to disruptive innovation, a sustaining innovation simply evolves existing products with better value for existing users. We find that the opportunity for new and enduring companies is most often successfully exploited when entrepreneurs concentrate their genius on disrupting the status quo. Being in the right place at the right time may lead to the crude innovations evolving into more capable solutions. A worthy example of this concurrence of technology advances and market selection is found in the recent history of the computer industry. The mainframe computers yielded to the minicomputers in cost/performance and the disruption continued with desktop computers, to laptops, to the ubiquitous hand- held devices.

One visible common thread in the fabric of enduring enterprises is a founder with an unflinching view of the way things must be done and a fierce uncompromising condemnation of everyone who does not share and promote that vision. And yet, there is no room for lone wolves in the process of enduring corporate development. The leaders must be successful in harvesting the fruits of their greatness from the continuing efforts of their disciples. The lofty dreams and ambitions of the visionaries must be cultivated in the minds of others and realized in the day-to-day struggle to succeed in the marketplace. The second common thread is tying the equity compensation plan for the founder and all the key employees (or better yet everybody working at the company) to the financial performance of the enterprise.

Our search for extended organizational life leads us to examine the behavior of a few dominant companies that have been challenged to navigate the shoals of disruption. IBM leapt into the unfamiliar digital computer market leaving behind the familiar mechanical punch-card accounting machines which had provided enviable prosperity for over 30 years. Intel discarded its legacy semiconductor memory business and never looked back from its new perch at the top of the microprocessor competition. Other examples can be found where reactions to disruptions were slow or ineffective. One is Xerox hanging on to the familiar electrophotographic copier too long. Another is Kodak’s delayed response to the rise of digital photography.

“The lengthened shadow of a man” elegantly phrases the conceptual notion that David Aaker of UC Berkeley has called brand equity. Aaker defines brand equity as a set of assets, linked to a name and logo, which add to the value provided by a product or service. A fleeting image of the fruit with a bite missing conjures up the free spirit and individuality epitomized by Steve Jobs, but it also calls to mind the succession of unique Apple products that have dazzled the world.

We find that there must be a factor beyond the personal brilliance of the founder to produce an indelible organizational shadow. The enterprise, whether a computer company or a religion, must achieve a dominant market position with customers (believers) anxious to perform missionary work so as continually to strengthen its position. In the corporate realm, this factor often leads to government intervention attempting to deny the rewards of alleged illegal monopoly power. It may be that governmental scrutiny of market power is a required precursor to achieving a durable shadow.

Finally, if we were to visualize a room full of books on management theory we would find many volumes dedicated to the critical factor of management succession. The founder must start thinking about who will follow in his footsteps when his departure is still unthinkable. The succession plan must be clear and widely understood.