One of the most rewarding lessons I learned in graduate school was the importance of culture and values in building a brand or company. I co-authored a case study that was eventually published about the Four Seasons Hotels & Resorts, where we studied the company’s rise to success looking at traditional business metrics like financials, operations, and strategy, but we also looked at the intangibles. We concluded that one of the core principles of their success was their people and the company culture. Four Seasons core values revolve around what they refer to as a “Service Culture” and those are are not just words. Their hospitality mentality is pervasive in all departments. It is not only meant to guide customer service principles, but also how employees are meant to treat each other. It guides hiring (and firing) choices, strategy, operational decisions, even where they choose to locate hotels. Ultimately, their strongest competitive advantage and greatest asset is their people. Many entrepreneurs and investors should appreciate the power of the right people, company culture, and the importance of core values in building an enduring brand.
Many of my investments have been much more focused on those principles rather than just conventional metrics like discounted cash flows or P/E ratios, and not only has it lead to sizable gains, but as an entrepreneur, consumer, and an investor, it is rewarding to own a small piece of something where customers feel a connection to the brand that is dedicated to a higher purpose beyond just what they sell. That idea also plays a role in employee satisfaction & ambition. Below, I have a selected a few retailers that I believe embrace culture and core values throughout their respective organizations.
Lululemon is a high-end yoga wear retailer that is now diversifying in to other sports and also expanding their offering for men. When I first heard about this company it sounded like a fad. Plus, the stock was extraordinarily expensive on every metric. However, I started to rethink my knee-jerk reaction when I walked past a store in NYC after-hours and witnessed a free yoga class in the middle of the store and later found out they also organize group runs. What a smart idea. They were offering a valuable service to their customers, building loyalty and simultaneously catching on-lookers eyes. My interest was piqued, so I decided it was time to channel a Peter Lynch mindset and actually visit a store. I started to rethink my bias after the first visit. Not only is the physical layout in these stores easy to navigate and welcoming, but the employees, mostly young women adorned in Lulu clothes, are well-trained, helpful, and pleasant.
Among the company’s 7 core values are quality, product, integrity, balance, entrepreneurship, greatness, and fun. They also have a “manifesto” which is a group of quotes that are meant to inspire employees and customers alike and help shape the brand the culture. The hiring process is extensive, as is the training, where sales people are referred to as educators. All of that is evident in the shopping experience. It is not surprising to me that 70% of store managers are internal hires that the company empowers to make a lot of the strategic decisions about individual stores. When a company starts with one store in 1998 and by 2013 has more than 4500 stores across the world, it is an incredible accomplishment and I would argue that type of growth is not possible without people that all buy-in to the same values, culture and company goals.
Whole Food changed the grocery store by only focusing on organic foods, locally grown products, and a better service experience through improved physical design and most importantly dedicated employees. The company is annually voted as a top company to work for, and like Lululemon they have experienced an astounding rate of growth without sacrificing quality. In fact, if you look at public companies with the highest approval rating from internal employees, those stocks general outperform their peers.
Whole Foods culture is pervasive, guiding their strategy, hiring, and operational choices and ultimately shaping their brand identity. If you visit their website, their mission and values have top billing and as a customer, investor, or employee their values speak to the ability for tangible financial goals, broader community and environmental efforts to coexist.
When Amazon bought Zappos for $880 million, many investors thought Jeff Bezos was off his rocker, but I think Bezos realized that Tony Tsieh and the team at Zappos had created a unique culture. Employees embrace the core values with tribal zeal and the fanatical customer base (myself included) appreciates that they do things differently, with a sense of humor, and always from a customer focused perspective. In fact, one of the stipulations of Tony Hsieh behind Amazons acquisition was that the Zappos management & brand remain independent because he knew they had created something special that might get lost if the company was integrated. In Tony Hsieh’s book, Delivering Happiness, he goes in to a detailed story of how the culture evolved and why the company’s core values and culture which evolved after many challenging times for the company was the basis for their success.
I chose the three companies above because they are all retailers albeit in different areas and they all are pioneers. All have experienced outsized growth, but most importantly, while they all embrace culture and values in all aspects of their business, each value system is vastly different than the other. It isn’t about a one-size-fits-all approach; it is about finding the right recipe for the individual company. The common element is the degree of unity, belief and adherence to their respective value set. If values are just words and a company makes decisions in a manner that seemingly disregards their core values, it can have the opposite effect on employee dedication, and thus have a deleterious effect on the brand and customer loyalty. It is evident from all three stories, that instead of attempting to indoctrinate people in to a company’s culture, the ideal is to hire those whose personal values are already aligned with those of the company. Values, culture and people are more than just words; they are the soul of a great brand and a smart investment for the investor or fledgling entrepreneur.