by Andrew Syrios
Back in 2001, Jim Collins and his research team put together what I consider to be one of the best business books ever written in Good to Great. In it, he and his team looked at companies that struggled with mediocrity for 15 years only to transition into sustained excellence for 15 years. Their criteria was to find companies whose growth was at or below the Dow Jones Industrial average only to then have cumulative returns of three times or more the Dow Jones over the next 15 years.
After combing through a mind-numbing amount of stock market data, they found only eleven examples.
One such example was Kimberly-Clark, a struggling paper company that transformed itself under the leadership of Darwin Smith in the early 1970’s. While this example must be viewed with some caution for reasons I will explain, there is certainly some important wisdom in it.
“In 1971, a seemingly ordinary man named Darwin E. Smith became chief executive of Kimberly-Clark, a stodgy old paper company whose stock had fallen 36 percent behind the general market over the previous twenty years.
Smith, the company’s mild-mannered in-house lawyer, wasn’t so sure the board had made the right choice… But CEO he was, and CEO he remained for twenty years.
What a twenty years it was. In that period, Smith created a stunning transformation, turning Kimberly-Clark into the leading paper-based consumer products company in the world. Under his stewardship, Kimberly-Clark generated cumulative stock returns 4.1 times the general market, handily beating its direct rivals Scott Paper and Procter & Gamble… (Good to Great, Pg. 17)
How did Smith begin such an amazing transformation? The answer lied in a massive course change and a very bold decision.
“Smith brought that same ferocious resolve to rebuilding Kimberly-Clark, especially when he made the most dramatic decision in the company’s history: Sell the mills. Shortly after he became CEO, Smith and his team had concluded that the traditional core business—coated paper—was doomed to mediocrity. Its economics were bad and the competition weak. But they reasoned, if Kimberly-Clark thrust itself into the fire of the consumer paper-products industry, world-class competition like Procter & Gamble would force it to achieve greatness or perish.
“So, like the general who burned the boats upon landing, leaving only one option (succeed or die), Smith announced the decision to sell the mills, in what one board member called the gutsiest move he’d ever seen a CEO make. Sell even the mill in Kimberly, Wisconsin, and throw all the proceeds into the consumer business, investing in brands like Huggies and Kleenex.
“The business media called the move stupid and Wall Street analysts downgraded the stock. Smith never wavered. Twenty-five years later, Kimberly-Clark owned Scott Paper outright and beat Procter & Gamble in six of eight product categories.” (Good to Great, Pg. 18-20)
Now normally, I would say this was a bit reckless. Jim Collins himself recommends “firing bullets instead of cannonballs” in another book. Which is just another way to say that a company shouldn’t deviate from its core business in one grand leap, but instead test the waters with a small investment and then build upon that if it shows signs of success. So Kimberly-Clark’s example is certainly not a universal imperative to do something radical at any given time.
However, Kimberly-Clark’s core business was not thriving and had very little opportunity for growth. Furthermore, Darwin Smith saw an opportunity in consumer products that he leaped at. In this particular case, the whole “burn the ships” mentality made sense as Kimberly-Clark desperately needed a major course correction.
What Real Estate Investors (Particularly Newbies) Can Learn from Kimberly-Clark
There are certainly times when a major change is necessary even in a mature business. Such was the case with Kimberly-Clark. Indeed, Nassim Nicolas Taleb advises his readers in The Black Swan to drop everything if a major opportunity comes up as highly improbable events (such as whatever opportunity has just arisen) are highly unlikely to come around again.
However, as I stated above, normally speaking, deviations from your core business should be made cautiously.
But Kimberly-Clark’s story does highlight that sometimes decisive action is necessary. And I believe this applies best to the many newbies who want to get into real estate investment, but find that first leap more difficult than the first time they tried the high dive.
Many newbies want to learn everything before they start. Some of the more unfortunate attend dozens of seminars and buy tens of thousands of dollars worth of educational material. The luckier ones find BiggerPockets. And while learning is absolutely essential, it should best be seen as an ongoing process. You don’t learn everything and then become a real estate investor. You learn the basics, then become a real estate investor and then continue learning. (After all, think of all the seasoned investors who continue to read BiggerPockets and other such sites long after becoming successful.)
There is no such thing as “getting there” when it comes to learning real estate (or anything else), but there is such a thing as paralysis by analysis. Please don’t misunderstand me, I’m not saying to jump in blind. Sure, go read The Ultimate Beginner’s Guide To Real Estate Investing and The Millionaire Real Estate Investor before taking that plunge. But you need to have a plan to take that plunge and not just continue to put it off and put it off in favor of more and more education.
Very quickly, more education just becomes more procrastination.
Make Your Action Plan
Matt Faircloth put forth a good idea with the 30 day “Newbie Challenge” which outlines one step a day and culminates in taking the dive into real estate investment. Whether you choose his method or not, I would highly recommend making a plan of action (i.e. read these books, attend these REIA meetings, seek out these vendors, etc.) and setting a start date that you stick by. It would even be a good idea to make this plan public to keep the pressure on you.
“Succeed or die,” as Collins put it, may be a bit over-dramatic. But if you truly want to be a real estate investor, you need to hold yourself to a plan and a date to start; to make a major course change in your career. If real estate is your calling, sooner rather than later, you need to “sell the mills” and jump in.
How was your investing affected by your action plan? What was the key to taking your first step?
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