The Branded Pantry

Two articles in the 7/7/2008 Wall Street Journal illustrate contrasting market influences facing business leaders today.

 “Look Closely Before Biting”, offers prospective investors caution about Whole Foods. They caution hedge funds and other program investors who are salivating over the 40% stock discount on the brand that they might end up with a not-so-savory snack.  WSJ opines that this past-darling of grocery growth needs to cull costs, temper store opening plans and pull the plug on International Expansion in order to provide new investors a healthier diet. 

“In Search of Growth Leaders”, is a scant section or two away in the same WSJ.  In it a different set of experts talk about the importance of organic growth, focusing on the leaders and the “developing leaders” who help companies break out of industry molds, capture or create new markets and build innovating products and services. 

Risking oversimplification, these articles represent different ends of the business approach spectrum.  “Management” in one case are shareholder representatives (Hedge Funds, Private Equity, Mutual Funds).  They in this case and in cases such as the current Yahoo battles, want a company which has been valued historically as a growth company, to change strategy and focus on internal controls to improve earnings.    In the second article dominant management tends to be internal, entrepreneurial and employing a strategy that relies heavily on information external to the company.  That information is often incomplete and  management understands it will lead to some failures in their portfolio of  growth strategies. 

Two very different approaches to business, neither wrong in and of itself.  Some would say that the internally focused approach should be favored during tough economic  times. 

Certainly a central cost control strategy can result in an earnings growth company (Sears) for a while.  This approach can grow top line too, usually through acquisiton and integration.    I do see however, that the two strategies are fundamental, and do not mix well.  I cannot see Whole Foods or Yahoo continuing to innovate and grow under the ownership of investors who only really understand internal control numbers.  Those types of investors aren’t generally comfortable with the ambiguity of an organic growth environment and culture.  They understand ”cost per” and ”defined market size” types of numbers but emerging markets don’t lend themselves to these types of precision and require some level of informed trial.  I don’t see the more inwardly focused investor representatives changing their approach to business and embracing organic growth strategies and executives when economic trends change.  Nor do I see the types of executives who can and want to innovate, break out of industry molds, capture or create new markets thriving in an environment where the focus and the understanding are focused on internal controls. 

At the same time, if the culture and environment that produces organic growth, begins to falter or sputter for whatever reasons……guess who is waiting in the wings?