Briggs & Stratton is our proverbial canary in the coal mine. The fundamental problems that pushed the 100+-year-old company into bankruptcy will devour many other businesses if we don’t begin steering differently.
Some want to blame COVID-19, convinced it’s the perfect villain, the reason for Briggs’ collapse. But as Vincent Shiely, who ran two of Briggs’ product groups in the early 2000s, said in a recent LinkedIn conversation, “It’s more complicated than COVID.”
“There are many who say that under a different path this would not have happened,” added Shiely, now a partner at Lubar & Co.
That different path is called innovation.
The company that in the early 1950s revolutionized the lawn and garden industry by developing the first lightweight aluminium engine this time failed to innovate.
Sure, Briggs added new features to its products and more recently laid out plans to push into commercial battery power, but the company never drove the kind of transformative innovation that could have helped it grow beyond the reach of the challenges it is facing.
That failure to innovate sprang from a misguided vision. Todd Teske, Briggs’ chairman, president and CEO, and his board of directors, made the fateful decision to continue providing returns to shareholders rather than ploughing money into new product development.
Briggs has spent $167 million on research and development but $239 million on share repurchases since its 2012 fiscal year, according to securities filings.
With no major product innovations, operating margins — profits after the cost of production — declined. Briggs’ operating margins fell to -3% as of June 2019 from 13% as of June 2002, said Richard Wamboldt, a student in the Investment Management Certificate Program at the University of Wisconsin-Milwaukee.
Essentially, Briggs has been losing money on the products it sells.
Wamboldt, who spent the most recent academic year studying Briggs, said there were many external factors that contributed to the company’s problems.
“They got the worst of the worst,” Wamboldt said. “Out of any company I can think of they were dealt the worst hand.”
According to Wamboldt, external factors that walloped Briggs included: Rising steel and aluminium prices; a decline in brick and mortar sales; extremely unfavourable weather patterns that disrupted seasonal sales; a bankruptcy filing by Sears, Briggs’ largest customer; the trade war with China; and of course, COVID.
Hindsight is a 20/20 vision, but if Briggs had been innovating, its path may have looked quite different.
All of this is easier to say than to do. Companies in this area of the country — and Briggs is no exception — generally have much narrower profit margins than big West Coast tech companies, for example.
But the fundamental job of a business is not to produce pretty financial ratios and keep costs in line. It’s to develop an ever-growing portfolio of products that more and more customers want to buy.
It’s to do what Briggs used to do: disrupt the market with innovative products that sell. That’s why Tesla has a price-to-earnings ratio of 700+ vs. Briggs’ P/E ratio of…well, it doesn’t really have one anymore.
Here’s where we get to the important part. Briggs & Stratton, the world’s largest manufacturer of small gasoline engines and employer of around 5,000 people, including about 1,300 (down from as many as 11,000) in the Milwaukee area, agreed in its bankruptcy filing to sell all of its assets to a New York private equity firm for about $550 million.
Nothing we can do about that. But hopefully — now that the canary has died — we can leave behind this obsession with financial engineering and focus more on innovation. Focus more on the kind of new product development — maybe even through regional collaborations organized to use new technologies to solve big problems — that scales businesses.
If there was a mechanism that helped Briggs’ management team to make sure that product development happened without fail, despite the external challenges it faced, would they have gone bust? I rather think not. Briggs and Stratton’s demise is a prime example of what happens when an innovation accountability service (IAS) isn’t used.
To find out more about Innovolo’s Innovation Accountability Service, contact us now. If you are an active executive, manager or entrepreneur with innovative ideas and want to know how to build a more profitable organisation that has a better chance of survival against the odds, then contact Innovolo today.
The way we work is this: you bring us your business problems with your innovative solution in mind; We examine them and decide what needs to be done to ensure the success of your innovation project. Innovolo will then provide you with the advice and support that is tailored for your needs, so you can have a greater chance at succeeding in this competitive market.