Forbes Publisher Rich Karlgaard On How Great Companies Find Lasting Success
Rich Karlgaard is widely known as the publisher of this magazine. What may be lesser known is how diverse and entrepreneurial his career has been. He started two magazines, Upside and ASAP within the Forbes banner. He has founded a venture capital firm, Garage Technology Ventures, and is an advisor to multiple other VCs. He also founded Silicon Valley’s premier business and technology forum, a 7,500-member strong organization called the Churchill Club. Is there a thread that runs through all of those things? As such, he has become one of the most influential figures in technology and business more generally.
Having had the pleasure to get to know Rich, one of his primary gifts is storytelling, and identifying what is interesting and special in others. This strength is in full-blossom in his new book, The Soft Edge: Where Great Companies Find Lasting Success. Rich has long had a curiosity to determine the factors that have led some companies to endure during good times and bad. Especially in this day-and-age when analytics rule, he focuses on “softer” factors, chief among them being culture. Though he lives and works in the heart of Silicon Valley, he left the bubble of that region to profile companies in places like Milwaukee, Wisconsin (Northwestern Mutual), Rochester, Minnesota (The Mayo Clinic), and Memphis, Tennessee (FedEx). I spoke with him to find out more about what he learned that other companies should institute to develop a more lasting success.
(To listen to an unabridged audio version of this interview, please visit this link. This is the seventh article in the “IT Influencers” series. To read past articles with Salman Khan, Jim Goodnight, and Walt Mossberg among others, please visit this link. To read future articles in the series, please click the “Follow” link above.)
Peter High: First of all, I want congratulate you on a terrific book. Can you describe what the Soft Edge is and maybe a bit about how the notion came to mind?
Rich Karlgaard: Next month there is an anniversary related to the economy that nobody is going to take note of: the fifth year of the end of the Great Recession. The US companies went into recovery in June 2009 and yet 70% of Americans still think we are in recession. Now ask yourself why that’s the case? Number one, the economic growth overall hasn’t been that robust, with an average of 2% GDP growth on an annual basis over the last five years. We have seen fits and starts in the economy; there is no growth at all in the first quarter of 2014. We’re looking at 3% growth, if we’re lucky, for the rest of the year and this is just not good. From the end of World War II through the present, the American economy has averaged 3% annual growth, inclusive of 11 recessions including the nasty one we just went through and an equally nasty one in 1973 and 1974, as well as some really sharp ones such as the one in 1982. There have also been some mostly regional recessions, such as the one that Los Angeles went through from 1988 through 1994. The fact that the US economies has grown 3% despite all of those recessions means the 2% growth now is just not robust. But there is another story behind the reason why 70% of the people think we’re still in a recession and that is this economic recovery is incredibly uneven. It’s as if post-recession the entire economy has been put into the centrifuge which is spinning faster and faster, and only 30% of the people are winding up in a pretty good place. So the 70% that say we are still in recession, one of three things is possible:
1) They don’t have a job.
2) They are stuck in their job
3) They’re working for a company that is stuck.
I decided, after seeing these statistics and hearing these stories, that I wanted to get out there and find out what the 30% is doing, what the companies that are unstuck are doing. I lived my whole adult life in Silicon Valley after I arrived here to go to school in the mid-70s. I’ve seen multiple generations of Silicon Valley’s history from personal computers to network computing in the late ‘80s and early ‘90s, from Internet 1.0 in the late 90s to everything we have today. I wanted to get outside of Silicon Valley to do the research for the book. I wanted to talk to companies, large and small, publicly traded and privately held across a broad range of industries to see if there were extractable principles from these high-performing companies and what they were doing that was different. I particularly wanted to look at companies that had faced trouble before and made recoveries. I wasn’t looking at superstar companies like Google that have yet to be tested, in my opinion. I looked at companies that have been around for decades such as FedEx, Northwestern Mutual, Mayo Clinic, Specialized and also a couple of Silicon Valley companies such as Nest Labs and NetApp.
Additional topics covered in the article include:
- I’ve covered, both in the podcasts as well as in my writings for Forbes, a number of IT executives who have penetrated the boards of major companies. Companies that, to a greater extent, saw the value of having a strong technology voice at the board level talking about innovation, security, and a number of growth opportunities and threats. As you speak with a lot of CEOs, can you provide the flipside of that perspective as to what you are seeing in companies that have valued that perspective at the board level?
- I know Fred Smith played an inspirational role in your new book. Please explain.
- Given the importance of data analytics and the use of metrics and just data generally speaking to a much more dramatic extent than in past decades perhaps; that side if you will, has been gaining almost religious fervor among a lot of organizations and perhaps in some cases at the expense of the Soft Edge-type characteristics that you are describing. How do you think about the balance or imbalance relative to those topics?
- You mentioned earlier that Google, obviously a fantastic company, has not really been tested and you live in the Bay Area where there are a few organizations that have become talent magnets and are sort of the hot companies of the day. We have Facebook and Google that would fit the bill today just as Microsoft and HP did in years past. But there is a period during the rapid growth especially pre-IPO, where people are very excited about these financial events to come, and it keeps them motivated and locked to the company. Then a combination of the event happening and growth slowing translates into a more difficult place to keep one’s best talents Do you agree with that analysis?
- So we began this conversation with you mentioning that, although you didn’t put it this way, you got out of the bubble of Silicon Valley and got into Midwest to meet with organizations like Northwestern Mutual and Mayo, as opposed to the Facebooks or the Googles of this world. It is interesting that you found companies that are not necessarily the first ones that one thinks about as sexy organizations but in fact that’s partially the secret of why they have never been in style but never out of style, either, right?
- You said that in essence the Soft Edge is the only competitive advantage of lasting companies, which would seem to suggest that if you do this well the other benefits come. If you are going to focus on getting one of these right first, this is an area really to make sure that you are getting right, is that correct?
- I’ve always found it refreshing that SAS is in the business of analytics. Of course, they have a whole variety of analytics tools they use to evaluate how well their team is doing, but just as you say, despite the fact that it is their bread and butter business-wise they pay at least as much attention to the Soft Edge characteristics that you described which have brought great benefit.