Friday, August 1, 2014

Old and Big Is Good For Business

This study explains why Warren Buffet invests in established firms which dominant market share in their industries.  Most of the growth in revenue and employment in the US has come from older and larger firms.  Entrepreneurship has not been all that it is cracked up to be in the US.

I worked for a computer firm that experienced rapid growth, and became the second largest computer company in the world.  Our CEO, and founder, was asked if things were better when the company was much smaller.  His response was very quick.  He said that it was great to be a start up but it was much better to be big.  He no longer had to worry about raising money for investments.  He liked having a pile of cash to use anyway that he wanted.  He also had a worldwide infrastructure and a well known brand that opened up new markets for the firm.  Big is good, but technology changes quickly in the computer industry.  Size not provide insurance in high tech industries.  IBM, for example, has survived and prospered by transforming itself into a services company.  Most of its profits come from services that it provides for its large customer base.  It took many years and several failed CEO's to respond to changes in the hardware business.  Size has been good for IBM.

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