Brand equity is everything

The Lamborghini brand sixty years ago was not known as the luxury car brand it is commonly associated with today. They were actually well-known for making tractors. Apparently its owner Ferruccio Lamborghini was unhappy with the fact that the clutch on his Ferrari car wasn't working as well as he expected and decided to give this feedback to Enzo Ferrari, who tells him off that he is better off sticking to manufacturing tractors. Insulted, Ferruccio later went on to build the first Lamborghini supercar a year later. Fast forward a series of technology innovations and many years later, both Lamborghini and Ferrari are now associated with the league of prestigious car brands.


So when Apple announced last week that it had hired someone from Lamborghini to lead its electric vehicle program, it got me thinking: how does one go from high-end consumer products into cars? And is that even possible? Why would any veteran in the right frame of mind and who spent the last few decades of his life working in a zone of familiarity jump into a totally new business?


Can you imagine the kind of conversations he would possibly be having with the engineers on the ground: Calibrating watts to kilowatts. Migrating from small iPhone and Mac enclosures to designing large car chassis. To top it off, ensuring the religious compatibility with the entire Apple ecosystem - which I am sure will be an important part of the design process. This guy has to basically get management's buy-in to look and do things in potentially a whole different way.


How do you convince someone in management who has done things a certain way their whole careers to get out of his comfort zone and embrace a totally different way of doing things?


And had it been another company not as big as Apple championing such an initiative, would they also be able to headhunt and convince someone of similar calibre to drive this innovation?


Why viruses are important.

Businesses in their early phases struggle with sourcing for capital and achieving profitability. But once they have crossed that chasm and survive, they then have to deal with grabbing other important resources such as attracting and retaining talent.


You can use capital to buy talent. But to keep talent, you need more than just money. You can retain the existing employees and management teams that have been comfortable with a certain way of doing things, keep the status quo, and you may most likely continue to survive.


But to get to that next level, you will need introduce a change agent, a different way of looking at things and someone who dares to challenge conventional wisdom. Sometimes I like to think of it as introducing a virus to the system.


Vaccines work that way: Bring in a small enough dose of a foreign agent to the body without killing it, allowing the host to learn and adapt. There will be discomfort. But over time, you will grow and acquire immunity.


Professional experiences, both good and bad, follow a person around for a long time.

Well established companies like Apple have better leverage over smaller companies to attract and inoculate talent because of their brand equity. Branding doesn't necessarily apply only to consumer or retail facing businesses. It is how people outside the firm view the company - the customers and suppliers (existing and future), as well as employees: past, present and potential.


Are existing and past employees proud to say that they have worked at a particular firm? Despite the expected grunt of having to work long hours under tremendous pressure and high expectations, do they feel a sense of accomplishment and pride after leaving the firm? Do these people feel like they have learned something or contributed to something during their stint within the company? Do past employees simply drop off the radar once they leave the company or does HR make it a point to keep it touch with them? An example of those who make it a point to keep in touch with past employees or alumni include KPMG, Goldman Sachs, McKinsey, the list goes on.


Most alumni who reminisce their time within the firm over drinks tend to mostly remember the struggles, the tough times and the nasty people. For good or for bad, these moments represent shared experiences. And no matter what kind of impact it has left on them, these shared experiences inevitably shape their professional outlook and approach towards their future careers. Those experiences and intangible skills acquired form a sense of identity - much like how people feel a sense of loyalty to their countries although the majority will continue to complain about taxes and how their governments are not doing enough to help them.


This sense of identity in the context of the corporate world is basically brand equity.


But how do you nurture brand equity?

  • Encourage people to embrace discomfort as a normal

  • Dare to try (and fail) attitude - don't over-penalize for the lack of results from trying, penalize for the lack of trying.

  • Encourage idea generation and reward execution - it's good to have ideas, but remember that execution is everything

  • Hire well - Test for ability and skills, but once employees and managers come onboard, be genuine in understanding what drives them deep down and make an effort to help them achieve their personal development goals

  • Remember that all employees (past & present) are brand ambassadors for the firm - never under-estimate the extent how much advertising (good or bad) they can do when they are not at the workplace

Customers, suppliers, employees and basically anyone who comes into contact with the company directly or indirectly needs to form an impression of the business that resonates with its values and corporate culture. But culture cannot be built overnight. Like a good habit, it is formed from months and years of iterating and improving. A distinctive company culture sticks long after employees have come and left. And with all things in good time, culture becomes brand equity.


Rewarding behaviour rather than performance.
"We only incentivize performance" - that's impossible... performance is a result. You can only incentivize behaviour. And so the best companies are aware of their own values... and build a culture around those values. The ones that go toxic, they forget about those values, they think it's performance at all costs. - Simon Sinek

Any new product or venture has risk, but beyond a strong balance sheet, the companies who are most genuine, willing to adapt and embrace change with a little discomfort to build a good culture and brand equity will find themselves in the best position to attract talent and succeed in the long run.


[Disclaimer: I hold shares in AAPL]

[The story of Lamborghini and Ferrari can be found here.]

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