Water Can Flow or it Can Crash

By Michael Carter - July 3, 2012 | Tickers: BBY, HPQ, IMAX, LVS, RSH | 0 Comments

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Bruce Lee once famously said, ”If you put water in a cup, it becomes the cup; if you put water in a bottle it becomes the bottle; if you put it in a teapot it becomes the teapot; now water can flow or it can crash.  Be water, my friend.”  Now if more businesses followed this advice, more specifically the part about flowing or crashing, perhaps more businesses would not be so stubborn about change until it is too late.  Perhaps Bruce Lee’s philosophies don’t just apply to martial arts but also to big companies.

Ice Companies

Ice companies are those that didn’t change and thought their past success would guarantee future success.  Many companies are guilty of this, but below are a couple that are notorious for not changing at all.  Some change but then take back that change and continue with old ways only to see how that decision later comes back to haunt them.

During the majority of the 20^th century, Kodak dominated the photography world.  Its market share of photographic film sales was near 90% during the late 1970s and it remained solid until computers became more common in the 1990s and early 2000s and inevitably digital photography was born.  What most people don’t realize is that it was Kodak, and not some other company, that invented the first digital camera.  Kodak actually invented it in 1975 but they quickly dropped it.  Why would they invent something for the future when they were dominating the present?  Why cannibalize their business?  Kodak failed to see the future and was not willing to change.  This led them to trying to play catch up decades later after many competitors already had planted their mark in the digital camera market and Kodak wound up going bankrupt in early 2012.

Blockbuster shares a similar story in a slightly different way.  Before the age of the internet took off, Blockbuster dominated the video and game rental business for much of the 1990s.  Strong competition by Netflix, Redbox (which is owned by Coinstar), and many online mediums, however, offering the same movies and games, as well as the inevitable free download issues due to internet piracy that also affect the music industry, ended Blockbuster and its competitors with the same business model.  Blockbuster today is largely extinct with the exception of their self-service kiosks, which ironically still compete with Coinstar’s Redbox kiosks.

Slushy Companies

Slushy companies are just what it sounds like.  They aren’t quite frozen and stubborn to keep old traditions, but aren’t quite liquid like water either.  They would like to keep their old ways but do see that change is needed far before ice companies do.  Some of them try to change upper management, modify business models, and address their issues and faults publicly.

RadioShack (NYSE: RSH) has been around since 1921.  It's tried to make improvements for much of the 21^st century including closing hundreds of store locations in 2006, conducting corporate layoffs, ending partnerships with certain suppliers like T-Mobile, and discontinuing dozens of their own brands within the stores.  However, the internet is getting the best of RadioShack these days despite their attempts to improve the bottom line.  Popular online vendors like Digi-Key sell many of the same products that RadioShack does far more efficiently for the consumer and at equal to or lower prices.  Digi-Key is somewhat the opposite in business philosophy to RadioShack when it comes to locations.  Digi-Key is located in one centralized location in Minnesota.  RadioShack, despite closing hundreds of its stores, still has over 7,000 stores nationwide.

Best Buy (NYSE: BBY) looks to be closing in on the same fate as the late great Circuit City.  Best Buy was named “Company of the Year” by Forbes in 2004.  Oh so how fast does technology change and how quickly the top can drop.  Today, Best Buy is used by many customers as trial-and-testing grounds before these same customers buy the same products online for cheaper prices.  Best Buy now is trying to reinvent itself and rebrand itself through new advertising and promoting their retailing ability to cell phones.

Hewlett-Packard (NYSE: HPQ) has tried to make changes so you can’t blame them for not showing effort.  They purchased Palm, Inc. in April of 2010 – a dying business in itself.  They tried to compete with the big boys in the tablet market with their HP TouchPad, which was released July 1, 2011, only to be discontinued August 18, 2011.  They have even tried different CEOs in recent years.  All choices didn’t benefit the stock very much.  The problem is that they are changing but are taking too long to change.  The HP TouchPad was said to have been a great competitor with the original iPad from Apple.  However, the first iPad was released in April 2010 - over a year earlier than HP’s device. 

Water Companies

Water companies are obviously liquid.  They are able to change, move with the flow of technology, and create.  Water is vital to life on Earth and being like water is vital to existing as a company on Earth.

Saying Apple would be too obvious and most already know its famous story.  They went from slow computer growth to the iPod, to the iPhone, to the iPad, while improving their computers, which was their original product, in the process.  Recently they have pursued the iCloud in the new cloud computing market and are in development with the iTV.  But let’s get to some other companies equally worth investing some time in and realize why these companies are doing well.

In the past 10 years, IMAX (NYSE: IMAX) has increased over 325% in stock price and has continued to make its way into the movie business.  What was once hard to find near where you lived, and almost exclusive to top museums, science centers, and amusement parks, even if you lived in a major city, today there are nearly 600 IMAX theaters across 48 countries.  Today many of the popular blockbuster movies are shown in IMAX form and more recently in IMAX 3D.  In 2011, IMAX announced a 4K 3D digital camera that is similar in wide resolution as a regular IMAX film camera.  Earlier this week, IMAX signed an agreement with Frank Theatres to have 10 more IMAX theaters installed.  IMAX is clearly listening to demand, bringing new technology to the fans, and growing its business across the world.

Las Vegas Sands (NYSE: LVS) has actually seen its stock drop over 18% the past 10 years, but has made a ridiculously huge comeback of nearly 2500% since March of 2009.  What makes them water?  They have a CEO named Sheldon Adelson that can forecast opportunity and take calculated chances for the future of the company.  Probably not on the level of Steve Jobs, Adelson in my opinion is not so far off given the different market sectors and business models.  Adelson was the first to foresee the financial potential in gambling in Asia and saw opportunities in Macau.  He also saw a way to attract the 3 billion people that live within a five-hour flight nearby by creating a huge Las Vegas strip atmosphere in Macau. 

During all the building and burning of money when times were tough at the beginning of the recession, Adelson also used his own money to fund the completion of his creations.  He created Marina Bay Sands in Singapore and now is currently try to flow with the trend in other countries within Asia. 

Be the Liquid Form of Water

Do all companies in order to be successful long-term need to be like Apple, IMAX, or Las Vegas Sands?  No.  However, they need to realize that change is in inevitable.  When investing in companies, especially if you are in it for the long-haul and not a day-trader, try to look at the company in the grand scheme of things.  Does the company you’re looking at have the products, the leadership, and the creativity to stay where it is or move closer to the top?  Is it willing to be a pioneer?  Or does the company have a stubborn culture that tries to force its way of doing things onto consumers?  If a company does try to change, does it recognize the value of time and what it means to its bottom line?  Research in Motion dropped over 25% this past week.  What was once a top cell phone provider may be seeing its last days as the company we all know it.  The delay of the Blackberry 10 just may be the icing on the cake.

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