I Second the Motion for UnSexy
Rafer's Rule #1: "˜Un-sexy' is good business. This is a riff on a market
principle Rafer picked up from a couple of his ancestors back east: one
who ran Rafer's Kosher Meats; and his grandfather, who ran Rafer's Army
Navy Surplus (both were in business in the 1950s, long before Rafer was
born.) The idea here is that there is potential in furnishing a
(seemingly) boring business that plenty of people need, but which few
people want to do - a.k.a. stuff that ain't sexy. Which also means
you're likely to have a reliable market for your business, and might
not have so much competition - good!
I absolutely agree. I have been in sexy and I have been in boring, and from a long-term profit perspective, boring is better. Here is the way I put it to friends: "Avoid any business where there are substantial non-monetary reasons why people might want to start a business there." For example, the bankruptcy roles are littered with brew-pubs. Guys have a male fantasy of owning their own bar and brewery, and, shazam, there are way too many of them. Many parts of aerospace are the same way, filled with guys who love aviation more than making money.
From reading the press, it would seem that what the world is short of is "bold new visions." But in fact bold new visions are a dime a dozen. I had to try to sell a number of them when I was in the Internet world. I would argue that what is in fact in desperately short supply is managers and companies who can focus, day after day, ruthlessly on operational excellence. I worked for years for a company called Emerson Electric in St. Louis, a conglomerate that owned the world's greatest collection of boring businesses. In their prime, under CEO Chuck Knight, they were unbelievable at blocking and tackling in boring businesses.
This point about boring and sexy is so important that when I was at Harvard Business School, the first two classes in the first year competition and strategy course hammered these points home. Class one was the story of Rockwell Water Meters. Class two was the story of some go-go semiconductor business (maybe Fairchild?) These two cases epitomized "cool" and "uncool", but in the end it turned out the semiconductor firm never made a return on capital, while the water meter business had stratospheric returns.
The common response I get to this is, "but what about all of those Internet millionaires?" With a few exceptions (Amazon, eBay), most of the folks who made millions in the Internet did not make them from operating profits. They made them with timing, selling out inflated stock to the public or to a bigger sucker (e.g. Yahoo) before the whole Ponzi scheme crashed. Does anyone really think that Maria Cantwell created real value in the marketplace?
