Brand Relevance: Making Competitors Irrelevant - always yours

36 BRAND RELEVANCE
newness (defi ned as the number of new fi rms entering, less the
number of fi rms leaving, during a seven - year period) and industry
profi tability. It is well documented that new categories and
subcategories tend to be created by new entrants. A reasonable
conclusion is therefore that those creating new categories or
subcategories will earn superior profi ts.
Firms with established businesses struggle to grow and thrive
no matter how excellent their management. An analysis of a
database of some 1,850 companies in seven countries followed
for ten years revealed that only 13 percent of companies were
able to achieve modest growth (5.5 percent real growth) and
profi tability targets (exceeding the cost of capital) over a ten -
year period.
8
If a fi rm has performed well for several years, the
chances are high that it will falter soon. Studies of the dynamics
of companies provide supporting evidence. Of the S & P 500 in
1957, only 74 fi rms remained in 1997, and these fi rms performed
20 percent under the S & P average during that period — meaning
that the newer fi rms performed at a higher level. 9
Another study of fifty venture capital firms found that six had
abnormally high profitability. The common characteristic of these
six was that they had identified prospective areas of promise, such
as Internet supporting technologies and seeded companies around
the area. They were thus investing ahead of others who waited for
trends to become more visible and mature. Consequently, these
six firms undoubtedly were more likely to be creating new categories
or subcategories than the others and the resulting first-mover
advantages probably accounted for their financial success.
More direct evidence comes from a study that considered
strategic decisions within a fi rm. Kim and Mauborgne looked
at strategic moves by 108 companies; the 14 percent that were
categorized as creating new categories had 38 percent of the revenues
and 61 percent of the profi ts of the group. 10
A series of studies examining the effect of announcements
of R & D activities on stock return has shown a signifi cant
relationship, announcements had a positive impact on stock