One-Product Firms Find Life a Balancing Act
Whenever anyone suggested that WD-40 Co. needed a second product, President Jack Barry always gave the same response: Why mess with success?
By concentrating on its only product, WD-40 Co. last year sold $57.3 million of the versatile lubricant, penetrant and rust preventive that “stops squeaks, protects metal, loosens rusted parts and frees sticky mechanisms.”
Consequently, Barry raised some eyebrows when he recently indicated a willingness to consider adding a second product.
“Heretofore we have simply said ‘no’ to people who asked us to look at (another) product,” said Barry, WD-40’s president since 1969. “Now all we’re saying is that we have some time to conduct research to see if (a product) does or doesn’t meet our product criteria.”
Simple economics generally force one-product companies--those which receive the lion’s share of their revenue from a single product group--to grow into multiproduct companies, according to Leon Danco, president of Cleveland’s Center for Family Business and adviser to managers of small, family-owned companies that often need to bolster their product lines.
“To be successful, the (one-product) company has to take its segment of the market and develop it with more goods or services, and they have to have some unique way to market it,” Danco said.
Dominate Market
Companies such as WD-40 dominate their limited and clearly defined market niches because their products are “so unique or their promotional activities are so intense” that they somehow become identified as the “generic product” in their categories, Danco said.
Although some one-product companies prosper, said Danco, “a peddler with only one product on the wagon (generally) doesn’t make enough money per stop.”
Minnesota Mining & Manufacturing, which began as an abrasives company, and Du Pont, which started out as a gunpowder manufacturer, are the two best examples of one-product peddlers that successfully diversified, said Barry, who worked for St. Paul-based 3M before joining WD-40 in 1969.
And, Barry observed, “for years the old Coca-Cola company was intent upon staying a one-product company.”
However, broad diversification does not always appeal to one-product companies.
Since its founding in 1922, Rustoleum Corp., a privately held, family-owned company in Vernon Hills, Ill., has stuck to its core business of manufacturing metal coatings that inhibit rust.
Rustoleum’s rust-inhibiting paints grew from a “fish formula” created in 1922 by founder Capt. Robert Fergusson, a New Orleans whaling captain who discovered that some ingredient in whale blubber protected iron bolts on his whaling ship from rust, according to Arnie Silberman, Rustoleum’s vice president of human resources and administration.
The “whaling captain, thinker and entrepreneur” eventually turned that observation into “Formula 769,” an effective--but at the outset, smelly--rust-inhibiting industrial paint that generated all of the company’s revenue until the early 1950s, Silberman said.
During the 1950s, a declining whaling industry and a rapidly evolving chemical industry forced Rustoleum to replace the whale-based formula with synthetically produced alkyd, epoxy and urethane coatings.
And, during the 1950s and 1960s, Rustoleum modified its product line to include the popular consumer products--which restore luster to everything from lawn furniture to automobiles--that now produce 60% of the company’s revenue.
Still, Don Fergusson, the whaling captain’s grandson who is Rustoleum’s president, is determined that Rustoleum will “remain a manufacturer of products that inhibit rust,” said Silberman.
The Murphy-Phoenix Co., a small, family-run company in Cleveland, has won overwhelming consumer confidence with its Murphy’s Oil Soap, a gentle-cleaning household product that has been strong enough to fend off assaults from marketing giants that produce powerhouse cleaners such as Spic and Span, Lysol, Ajax and Mr. Clean. Consumers use Murphy’s Oil Soap to clean wood and other delicate surfaces that could be harmed by stronger cleaning products, Murphy said.
Last year the Murphys, who generate all but one-fifth of their revenue from the gentle cleaner, anxiously watched as a string of heavy retail hitters--including Noxell Corp. which introduced Kind, and Bristol-Myers, which tested O’Cedar--attacked the oil soap niche.
“They were unsuccessful tests,” observed Vice President Paul Murphy.
But few one-product companies are armed with a product as successful as WD-40 or Murphy’s Oil Soap. And most one-product companies “really don’t have a vision about what to do once a product runs its life cycle,” said G. Dale Meyer, a professor in the Graduate School of Business Administration at the University of Colorado and chairman of Boulder-based Western Consulting Corp. “They don’t know what they’re going to be able to do for their next act.”
Often Frustrating Search
That often frustrating search for a second product is not unlike “the old-time music industry’s Tin Pan Alley, where (writers and composers) were always scrambling for their next hit tune,” said one observer.
Developing a successful second product also has proven to be a tough act for computer software companies, according to Robert Lefkowits, vice president of software research for Infocorp, a Cupertino, Calif.-based market research company.
Although Ashton-Tate, which developed the dBase III software, and Lotus Development, which analysts say has sold more than 1.5 million of its Lotus 1-2-3 spreadsheets, are considered to be market leaders, they “are perceived in the industry as one-product companies because they derive more than 50% of their sales from one product,” said Lefkowits. “Ashton-Tate and Lotus are trying desperately to shed that image.”
Although Ashton-Tate introduced its dBase II product in 1980 (and the similar dBase III for 16-bit computers in 1984) those two products still accounted for 70% of the Torrance-based company’s $121.6 million in revenue for the fiscal year ended Jan. 31, compared to 85% for the previous year.
Although Ashton-Tate has since introduced products that “paid for their marketing expenses and development costs,” they failed to duplicate the success of the database programs,” said Scott Brown, an Ashton-Tate spokesman. The company, he said, anticipates faster growth from Framework, a product that differs vastly from the dBase programs.
At Cambridge, Mass.-based Lotus Development, “dependence on revenues from 1-2-3 continues to decline as a percentage of total sales,” according to a spokeswoman. The company’s newer Symphony and Jazz products, she noted, face “a pretty hard benchmark to go against (because Lotus 1-2-3) is still the best-selling microcomputer software program in the history of the business.”
While some one-product companies expand by moving to develop other products, others simply expand their reach geographically.
Although the Murphys believe that consumer loyalty to their oil soap would carry over to other products, they have instead focused on expanding distribution of their oil soap beyond traditional markets in the Great Lakes states.
“It’s only been in the last 10 years that the business has really boomed and grown,” said Murphy, who last year shepherded the “all-natural” soap onto Los Angeles-area supermarket shelves. “As of 1986, we’re truly a national brand, coast-to-coast.”
(The cleaning product is marketed as Murphy’s Oil Soap, but to make the stylized labels more readable, the product is identified as “Murphy Oil Soap.” And, Murphy’s grandfather attached “Phoenix” to the family name because the company “rose from the ashes” of several previous, unsuccessful business attempts.)
Some Firms Falter
Although Murphy credited his family’s continued “entrepreneurial approach” for its ongoing growth in the household cleaning market, Danco suggested that less-entrepreneurial companies falter when the founder “isn’t willing to risk what he has--security and peace of mind--for what he doesn’t need--a new product. He tends to look backward while (younger) managers are busy looking forward.”
Consequently, younger managers need “a lot of guts to tell a guy who’s made a couple of million bucks that his attitudes are now irrelevant,” Danco said.
Charlie Butcher, whose grandfather founded Butcher’s Wax in 1881, has gone to great lengths to keep his attitudes relevant, according to University of Colorado professor Meyer. Although the bulk of the privately held, Marlborough, Mass.-based company’s revenue is generated by the industrial cleaning product line that evolved from his grandfather’s floor wax company, Butcher remains “very interested in other products.”
Butcher has used the floor wax company’s profit to subsidize a division to develop new products that will replace the company’s existing lines.
Expanded Product Line
Butcher said creativity was in short supply when he joined the family-owned business in 1951. Wax sales were dropping because women shoppers were forsaking the hardware stores where Butcher was dominant to shop at supermarkets that were offering easier-to-use and better-marketed products.
Facing a no-growth future, Butcher expanded the one-product company’s line to include a variety of cleaning products. And, ignoring a Harvard Business School plan which suggested that the company stick with the retail market, Butcher moved to the wholesale end of the business. He also stayed active in other areas.
“He’s purchased and sold lots of other kinds of companies, but the wax company generates cash for his other activities,” Meyer said. “He’s the consummate entrepreneur.”
Still, to Murphy, the entrepreneurial task of taking one product and building a company around it is the basis of the American business dream. “After all, isn’t everyone’s goal to take a product and make it successful?” Murphy asked.
“The thing that’s difficult, as an academic and a consultant, is to try and get some of these (one-product company managers) to think long-term rather than constantly being involved in (daily) brush fires,” Meyer said. “You see successes, but you also see a lot of failures.”
