Hidden Champions Fund | The OQ (“Obsession Quotient”) of Hidden Champions
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The OQ (“Obsession Quotient”) of Hidden Champions

The OQ (“Obsession Quotient”) of Hidden Champions

True value investors do not blindly look for the attributes (such as “rising tide”, “cheap” P/E ratios or attractive yield spreads relative to historic “cycles”) without the guidance of the quality of the management running the enterprises. Otherwise, it would be akin to fabricating feathered wings and flapping hard; successful flight would not be possible.

In interacting with Asian entrepreneurs over the past decade, we observed two groups of entrepreneurs differentiated by their motivations and inner compass:

(a) One group has the belief “Cash is King”, defining success only in relation to financial goals, where the business more often than not exists to serve the founders and their families.

(b) The other group has the belief “Make Me Whole”, defining success in relation to their commitment to an Idea and Purpose larger than themselves to care for and serve others with love.

“Make Me Whole” entrepreneurs are extremely passionate about their work even if it entails sacrifice and hardship, believing that work impacts, inspires, and changes the lives of those they work with, especially employees.

The founders, their families, and team exist to serve the business and their consumers, thus allowing the business to outlive the founders themselves.

An entrepreneur’s value systems and beliefs can have a strong influence on his/her business decisions, culture, mission, and other important outcomes for his/her organisation. We observed in entrepreneurs that having the right Inner Compass of core values is necessary and critical to creating sustainable value.

For Buffett-Munger, the idea larger than themselves was manifested in the creation of a focused vehicle, Berkshire Hathaway, which compounds not only wealth for shareholders but, more importantly, compounds values and virtues as an exemplary role model in the way business is conducted and how they live their life in a simple and frugal way.

The Berkshire Hathaway Bus carries more passengers and supporters who get positively energised towards the right direction in the journey of Life in an increasingly harsh and pretentious world.

A true goal needs to become an obsession.

Think of Steve Jobs famous obsession with the perfect screws on the inside of the original Mac.

Think of the early Bill Gates who would “be in the middle of a line of code when he’d gradually tilt forward until his nose touched the keyboard. After dozing an hour or two, he’d open his eyes, squint at the screen, blink twice, and resume precisely where he’d left off – a prodigious feat of concentration.”

Think of Ray Kroc’s obsession with quality and cleanliness with his oft-quoted motto: “If you have time to lean, you have time to clean”, leading to the automation of as many operations as possible and the institution of rigid training programmes at “Hamburger University” for McDonald’s franchise owners, whom he required to manage their own stores.

Think of the late Mr Sim Kee Boon, one of Singapore’s pioneer top civil servants, best known for overseeing the construction of Changi Airport and turning around the fortunes of Keppel Corporation after succeeding the servant-leader Mr Chua Chor Teck, who was said to check toilets at Changi Airport at night.

We are also inspired by M.S. Oberoi, founder of the Oberoi Group, a chain of luxury hotels in India, who obsessed about every front-line detail in his hotels that might affect the customer experience. He would scrawl responses on customer comment cards even at the age of 94, when he could barely see and had to hold the cards an inch away from his eyes. The elderly Oberoi would visit his hotels to make sure employees were getting everything right and, in doing so, established a culture by which all employees shared in his obsession.

The late Carl Elsener III (1922-2013), the entrepreneur perhaps most responsible for the unprecedented success of the Victorinox Group behind the world’s most recognisable Swiss Army knife, had lived close to the factory and, until the age of 86, rode his bicycle to the office every day. He was obsessed with preparing the 4th generation to be competent managers of this worldwide successful, traditional Swiss enterprise.

We observed the following about “OQ”, or “Obsession Quotient”, over our years of interacting with entrepreneurs, innovators, and Hidden Champions.

(1) They view themselves as business insurgents, fighting on behalf of an under-served customer, a persistent idea, mission, duty, calling, and vocation that preoccupy/absorb/dominate their every thought and desires every second of every day and make them approach each moment, decision, action, and day with this level of fixation.

They are completely captivated by an obsession that they simply cannot imagine conducting their life without. They always find their work more fulfilling than those who find themselves in a profession because it was expected of them.

For those who are obsessed by this pursuit, there is no separation between life and work. It is much easier to endure all the setbacks, reversals, and frustrations of management when you deeply enjoy your work.

All of the High OQ entrepreneurs, innovators, and Hidden Champions whom we observed have witnessed first-hand the problems that beset the masses and wanted to build a business to provide useful products and services. They are not contented to stop at $10m, $100m, or even $1 billion, unlike most business people who rush to buy fancy property and cars for themselves.

They want to build and scale their businesses so that they can give more. Only when we have the desire to give can we want to persevere in building something meaningful. This urge to build in order to give is the magnetic north to scale a business and they work obsessively to realise this vision.

Imbued with a perception that everything from telephony to music distribution to consumers’ relationships with technology is being disrupted, Steve Jobs felt there was simply no time to lose. This understanding has fuelled the rapid-fire pace of his actions and his obsession with “what’s next?” in products (although he would never rush to market a product he thought imperfect). It may have also fed his often harsh, dictatorial, and somehow still-inspiring management style.

(2) They have an obsession with the economics of customer loyalty and have this deep curiosity for what is going on at the front line, where the business meets the customer.

They have an obsession with cultivating a culture of decentralisation, trust, and cooperation to foster innovative experimentation, including investing in a system to cascade decision rights throughout the organisation.

(3) They foster an owner’s mindset, which keeps them fast, bold, and infused with a deep sense of responsibility for long-term results.

They do things with a long-term approach because they strongly believe that is the only way to build a truly durable and excellent business.

(4) They are obsessed with staying grounded to their values. Carl Elsener Jr., the fourth-generation business leader and CEO of Victorinox commented of the values upheld by his beloved father Carl Elsener III:

“Despite his success, my father has stayed grounded. The most important values in his life have always been mutual respect and trust, courage, gratitude and humility. I have also learned from my father that the company who wants to stay successful in the long-term basically needs to concentrate on three things: the people, the customers and the products. He embraced that concept very nicely.”

In essence, they are the single-minded monomaniacs with a mission to accomplish. They are ruled by spirited behaviour, by the vigorous pursuit of a worthwhile competitive idea. Peter Drucker highlighted also the importance of being single-minded in the passionate pursuit of one’s quest in life:

“The single-minded ones, the monomaniacs, are the only true achievers. The rest, the ones like me, may have more fun, but they fritter themselves away. They carry out a ‘mission’; the rest of us have interests. Whenever anything is being accomplished, it is being done by a monomaniac with a mission.”

The interaction with their clear goal and single-mindedness is an essential factor for their stamina and perseverance. Success and the achievement of goals inject new energy into these leaders. Nothing energises an individual or a company more than clear goals and a grand purpose.

They do not cling on to the idea that work should be fun, exciting, entertaining, and invigorating every day. Operating a business is a serious, rugged, flaw-ridden, demanding task.

The inevitable fluctuations and vicissitudes of an industry’s affairs, as well as in the general level of economic activity, often seem to compel painful decisions and trade-offs to meet the exigencies of the day.

But operating a business is also thrilling, challenging, and rewarding. Work is like life: sometimes fun, sometimes moving, sometimes frustrating, and defined by meaningful events. Those who found their place don’t talk about how exciting or how stimulating their work is.

Their language invokes a different troika: meaningful, significant, fulfilling. They pursue virtues rather than seek instant gratifications, not because such pursuits are pleasurable, but because they are meaningful.

They have something significant yet to be achieved in their lives. Without virtue, leadership is nothing. They epitomised what Benjamin Franklin echoed: “Industry and Frugality”:

“An enterprising man not in haste to get rich, willing to run some risks, yet not willing to risk in hazardous enterprises the property of others entrusted in his keeping, careful to indulge in no extravagance, and to live within his means. Simple in his manner and unostentatious in the habits of life, not merely a merchant but a man, with a character to form, a mind to improve, and a heart to cultivate.”

Work is the ultimate seduction in life, Picasso illuminated. Indeed, the High OQ entrepreneurs and Hidden Champions put their work, their will, and their world in the services of others.

They are lit by passion, make that extra effort, and demonstrate that extra commitment. They want to engage in something grand and beautiful and noble (in their own interpretation), well worth the toil and anxiety.