Published in: 2009
Professor Hermann Simon coined the term “hidden champions” almost thirty years ago. The key criterias for a Hidden Champion are: (1) #1-3 on the global market or # 1 on the continent, (2) revenue does not exceed $4bn and (3) the company has a low level of public awareness. There are about 2,700 “hidden champions” around the world and around half of them are German. Nevertheless, they often have global market shares of over 50%.
UNKNOWN TO BROADER MASS. According to Simon, many extremely successful companies escape the attention of those whose business it is to know everything (media), understand everything (scientists) or improve everything (consultants). But within their own industries, they are known, admired or even feared.
NICHE PLAYERS. Hidden Champions often focuses on narrow markets, sometimes a product / market. They sometimes have monopolistic positions, thereby creating effective barriers to entry. It is not easy for other companies to imitate the super niche or market leader. Hidden Champions mostly works with an integrated value chain along with a limited definition of relevant markets.
GLOBALISATION. Because Hidden Champions offers unique products in small niche markets, they are often in great need of going abroad early in the company’s development. Globalization is the dominant driver for growth. Also, the global perspective often shows unplanned opportunities for growth. Globalization is a long-term process that requires perseverance. When a company is established and operates smoothly on a global scale, this situation often appears quite natural, as if it has always been so.
MUST HAVE PRODUCT DIFFERENTIATION. The special status of the product must be sustainable. Copies and establishments of similar products must be prevented at all costs. Various instruments for maintaining the product’s unique position are patent protection, a powerful trademark or logo, intensive relationships and acquaintance with customers and fine design with frequent updates. Hidden Champions are unknown to the public, but the brand often has a strong and unique position with the ecosystem.
GOOD CUSTOMER RELATIONS. Hidden champions have a very close relationship to their most demanding customers. They open up their organization in such a way that many of their employees have direct customer contact. By doing this, they can use their top customers to drive innovation. It’s in tackling the problems of their most demanding customers that they source their next generation of innovations.
INNOVATION. Simon’s case studies show that there is no single driver of growth, but that globalization and innovation are key. A hidden champion will on average spend 6% of its revenue on R&D (ca 2x the average level). That is a long-term mindset. Not only that, but they also produce more patents per thousand people and they do it far cheaper than corporates. This innovation is core to growth because you can only lead the market if you’re willing to invest and keep changing your offering to match customers’ needs.
”SOFT” DIVERSIFICATION. Some diversified companies’ portfolios consist of none or few Hidden Champions. Other companies have many Hidden Champions in their portfolio. To deal with the dilemma super-niche companies are often faced with in terms of growth, “soft” diversification is an option. However, they must strive to maintain their traditional strengths. There is always a danger that the new business will be too distracting and that the core business will be neglected. “Soft” diversification means that the new products stay close to the traditional business (for example, bait to fish products).
ACQUISITIONS. Regarding acquisitions, Simon has some examples in the book (eg Wirtgen, Claas and Leitz) of Hidden Champions that have achieved success with the help of acquisitions. However, this increases the risk that the underlying forces that make the company a Hidden Champion may be lost.
RETAIN TOP TALENT. Most hidden champions do an outstanding job at holding onto their leaders and top employees. The hidden champions’ founding leaders may be no smarter than you and I, but they are more obsessed by their ideas, and their absolute commitment to their mission makes them unbeatable.