Get Your Phil Friday - Round 32

A family member recently asked me what I knew about a large company. They were considering applying for an open position, and they hadn’t been able to figure out if it was a good move. It took a lot of effort to restrain myself from shifting into teacher mode, so I’ve decided to subject all of you to the lecture instead. That’s right, buckle up for a non-scientific, highly subjective, verified by a sample of one, lesson on how to recognize good or bad companies. We’re going focus on the perspective looking from outside the company in. This isn’t an exhaustive list, but I’ve found it helpful to understand new clients, plan investments, and give advice before someone applies for a job. Everyone who goes through this process will have their own list of red flags based on what they feel is most important. I may write another article on how to understand company performance from an employee’s perspective if there’s enough audience interest. 

I can already hear all of the analysts in the audience shouting (with their hand raised, because they’re analysts) “But Philip, companies exist on a spectrum from bad to good, and no company is completely good or bad”. And I have two responses: 1) I’m so proud of all of you for using your critical thinking skills, and 2) Relax your high standards for 5 minutes and hear me out. We’re aiming for broad stroke judgement calls on companies. Think of it as a sniff test. If it smells off, then trust your gut. I’d be happy to debate nuances with you until the cows come home in the comments section. 

It's also important to note that I’m not referring to good or bad as an ethical or moral stance. When I say good, I mean well-run, stable companies, vs. poorly-run bad companies. The company would not exist if there weren’t a market for what they sell (a point we’ll cover later), so your opinion on what the company does would not impact how they operate. That’s going to come as a shock to a few members of the audience, but I promise you it’s true. You don’t change how a company does business with words, you change it by hurting their wallets. 

Okay, I’m off my soapbox. The number one sign of a good company in my book is a clear & consistent message. You have a clear idea of who the company is and what it stands for, and that messaging does not change over time. You may disagree with the message or hate what they stand for, but at least you understand what they’re all about. The companies to watch out for are the ones who seem to change their approach every few years. That tells you right away that they either don’t know who they are, or they haven’t hired the right marketing agency to tell them who they are. And that sounds like I’m kidding, but I’ve lost count of how many times I’ve heard a marketing consultant casually toss out a thought that the executives latched onto. Try not to let the vendors set your strategy for you. 

The second thing I look for is a stable market for what they sell. The questions to ask are: Do I understand where they make their money, and does it feel like that source will continue for a while? Some companies are easier than others. Cybersecurity? Yes, that’ll be a need for years to come. Wine glasses with terrible puns hand painted on them? Yep, I don’t see that trend dying off anytime soon. The 984th new hand sanitizer brand to hit the market? Probably not a great time to launch a new sanitizer brand. The old and busted analogy business school professors always give is horse whips to use with your buggy. “No one wants those anymore, and Ford put them out of business with his Model T.” That’s true, unless they rebrand themselves as an adult novelty accessory. (I apologize to any readers with delicate sensibilities). The point is - Look for a predictable revenue stream, and you’ll have a better sense for their trajectory.

Speaking of sense – Make sure work histories/experiences of their leadership team makes sense in context. Despite what executive recruiters may tell you, all C-suite executives are not made equal. If you looked up the top execs of a company on LinkedIn, you want to be sure they have an understanding of the space that they’ll be leading. At a minimum you would hope they have worked in that field before (e.g. hope a CFO isn’t tapped to lead Marketing). Relevant experience isn’t a guarantee of success of course. It’s more of a leading indicator that success is possible.   

For public companies, how do they describe their performance and the industry context for that performance? There is a ton of useful information in the annual statements that will tell you all about how the leadership team is feeling and the things they’re worried about. The shame is that millions of hours of energy annually are invested in writing shareholder updates that aren’t read by the majority of investors. I know a few people who skip the prospectus and read the summary on the Motley Fool instead. Do yourself a favor and go right to the source at least once. You’ll see that phone book you received in the mail isn’t as scary as you thought, especially if you skip all of the pages with numbers on them (Did you hear that whooshing noise? Dozens of analysts just made a shocked gasp). 

You’re reading this article on LinkedIn, and this is a great spot to research how the employees talk about their company (or their working experiences) online. In this instance, no news is bad news. Take a look around for employee engagement with company posts. Are there any company posts to engage with? Count the number of posts that talk about the employees vs. how many posts only cover business successes. Companies that only tout their success probably achieved that result at the expense of their employees. People want to talk about the things that make them happy, and if they aren’t talking about their company (at least a little) then you can consider that a red flag. 

You can also look online to see how the public talks about their experiences with the company. Keep in mind that most reviews only get written when venting, but the phrases and words people use can be very telling. A review with “I didn’t like this product” is relatively better to see than “their customer service rep told me where I could shove the product I didn’t like.” Your goal is to separate the opinions from the facts. Opinions still count in regard to the forward looking market potential, but they don’t necessarily mean a company is in trouble. Lack of customer service skills and multiple horror stories are symptoms of larger internal issues. 

Take a look at what they choose to share in terms of company news. Has the company in question posted any news in the last year? Does that news talk about anything besides new executive appointments and “From all of us we wish you a happy holiday season”? News story quality matters more than volume. “We formed a diversity and inclusion council” isn’t compelling news. If they said their D&I council efforts increased <specific demographic> employee hiring by ___%, then I would view that as news worth sharing with the public. Remember that the news topics are one that the company chose and took the time to publish somewhere. If they half-ass their news sharing, it usually means they don’t feel like sharing news is important, or they don’t have any positive news to share.  

How a company decides to price and promote their product is also very telling. Constant steep discounts and fire sales are signs that they have no idea what price they should be charging. There is a local rug store that has been holding Going out of Business sales for years now. Doesn’t instill a lot of faith in their rugs or business savvy, but it does make me say “huh, they’re still open” at lot. Relative pricing is also a red flag. If the price is highlighted by comparing to a competitor, then the unspoken message is that the competitor’s product is actually better, but we’re cheaper. Value seeking buyers may react positively to that type of promotion, but the company has now established a ceiling that they can’t break through. Good luck breaking out of the ground floor of pricing.     

I guess I should also mention that if you haven’t been able to find any of the above information, that’s a major red flag. Are you sure that company exists? Every company leaves some form of digital footprint, even if it’s someone talking smack about their interview. Google is your friend. (I thought about being fair and mentioning the other search engines out there, but I’m still salty from the loss of Ask Jeeves).   

Now you can speak intelligently about any given company without faking it (you fakers know who you are). Keep in mind that your 30 minutes of browsing the web will not make you an expert, but you will be smarter about the company than you were before. One final note for the job applicants out there. If you’re feeling bold, feel free to bring up your list of identified company red flags during your next interview and see what the hiring personnel have to say. The conversation is either going to go really well, or you’ll get a funny story out of the experience. Sometimes the funny story is the better long term trade off. 

-Philip