Dividends and Connecting the Dots

John Chambers joined Cisco in 1991, it had 400 employees and $70 million in revenues, when he left in 2015 after 20 years of being CEO, the company had $47 billion in revenues and Cisco is the backbone of the internet. Along the way, Cisco acquired 180 companies and beat out its competitors. How did he do it and can you learn something from Mr. Chambers? The answer to learning is yes and reading his book Connecting the Dots by Hachette books, NY, 2018 will help.

In the introduction, Mr. Chambers says when I look back on the incredible competitors who later disappeared, I realized that most of them did not fail because they suddenly did the wrong thing. They failed because they kept doing the right thing for too long. The biggest mistake we all make is that we get comfortable and we get disrupted because we do not disrupt ourselves. Take risks, challenge the status quo and never stop learning.

Chapter One   The Lessons of West Virginia (Disrupt or Be Disrupted)

Mr. Chambers tells a story when he was 6 years old and fishing. He lost his footing and fell into the river, a fast flowing river, his Dad called Hang on to the fishing pole. When there was a spot to get him out, his Dad rescued him. Why hang on to the fishing pole? It was not the cost of the fishing rod, but as long as Mr. Chambers focused on the pole , I was less likely to panic and that is not the worst thing to do in rapids. You have to go with the flow and look for opportunities to go out. You need to manage the fear.

In the 1950’s West Virginia’s Wanawha River Valley was the chemical center of the US. If you were in the valley working in the industry, you felt like you were sitting in the engine room of the next industrial revolution. They were producing fuels, polymers, disease resistant seeds and many other materials. You could not imagine a day that would change. The state did the right thing for too long – it was dependent on chemicals and coal. New competitors were coming to beat West Virginia where we thought we were untouchable. It was cheaper to mine coal elsewhere, owners started using more machines or less jobs. Utilities began to use natural gas or solar or saving energy which meant less coal was needed.

To address the real problem, you have to investigate the specific underlying issues and learn to step back to see the patterns and trends that point to the big picture. In other words, you need to connect the dots.

One way to try to think is what signs are that things are changing and how will those trends play out in 5, 10 or even 15 years? If you can you will see there are many opportunities to be found.

Mr. Chambers worked for IBM, for a long time with big mainframe computers, IBM was the world’s leader. Then along came microcomputers and customers began to want to change. IBM did not want to listen and that is why Microsoft stepped in; IBM was interested in the hardware, not the software.

Mr. Chambers moved to Wang Computers in the Boston area. For a time the Boston tech center was more important than Silicon Valley, but they did not realize Wang computers were not competitive against PCs that ran Microsoft. Wang was so focused on stealing market share from its peers that it underestimated the impact of a new crop of competitors. When the next innovation came, Wang was no longer relevant.

Mr. Chambers moved to Cisco and there was many competitors in the early days, anyone of them could have but did not. One reason is they failed to capture a market transition. The companies kept improving a technology which their customers did not want anymore. They diversified into the wrong business or picked the wrong partners. They held fast to analog technologies as the world went digital. They did not disrupt, so they were disrupted.

A market transition is not a threat. It is a period of movement from one state to another, when the skills needed to do your job change, when your customers move on to a new technology, or when an economy shifts to a new model. It can happen on its own, or as part of a wide trend. What is important is your recognize it is both reality and an opportunity. The ability to figure out the change will look like in 3 to 5 years before it happens and act on it is how you will win.

Linking to dividend paying stocks, when you think about change you often think how many companies do not exist anymore. It is difficult to continually make profits particularly if the company does not have a monopoly. A government mandated monopoly such as utility company is where you should have some of your investments. What are those companies doing to keep their monopoly? how do they change their businesses and as you answer those questions you can see which companies are providing the services. Investing can be easy.

There are more questions than answers, till the next time – to raising questions.



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