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Published:August 17th, 2013 14:23 EST
An Effective Business Principle: Community

An Effective Business Principle: Community

By Kaihan Krippendorff

I`m gliding home by train, past New England fishing towns, to New York from Boston where I delivered a speech to about 1,500 credit union executives. The topic that repeatedly popped up in my conversations there was the idea that pursuing a mission that benefits a community - as credit unions by definition do - generates enormous strategic power.

For decades the view was that if corporations served one master - shareholders - somehow everything else would work out. Wharton Business School in the 1980s drilled this view into me.

But like many, I am waking up to the truth. Serving a community is not just good, it`s smart business, and the wider you draw the lines around the community you serve, the fewer sources of resistance you create.

Consider Lifeway Foods (LWAY). I wish I had met this Outthinker before January this year because its stock price has more than doubled since then to $17 from just $8.

I got a chance to interview LWAY`s CEO, Julie Smolyansky, last month to learn how they have done it.

In 2002 when Julie`s father, who had founded Lifeway 16 years earlier, had a sudden heart attack and passed away, the running of his $12M revenue, publicly traded company fell on the shoulders of 27-year-old Julie, who took over as CEO, and her younger brother, Edward, who stepped in as COO. Many thought they were too young and inexperienced, and that they would fail.

But over the subsequent decade this brother-sister team has grown LWAY`s revenues to nearly $100M (they closed 2012 with $81M). The company`s five-year annual growth rate of 16% sheds a stark contrast with its industry`s average of -2%. It not only grows faster, but it`s also more profitable, clocking 35% five-year average gross margins compared to its industry`s average of 29%.

Don`t let these numbers fool you, however, because like a growing number of great companies, LWAY isn`t driven by such figures. LWAY is driven by bringing the health benefits of Kefir - a cultured dairy drink popular in Eastern Europe for millennia - to the world. You`ve probably seen their bottles calling out from your local grocery store dairy section. Think of a sort of smooth yogurt drink in flavors like blueberry, strawberry, and pomegranate.

Julie said that when her parents moved to the US from Russia during the Cold War, "They literally started crying the first time they went to the grocery store in the US. [Back home] they had to wait in line for blocks for chicken and when they got to the front the chicken was gone." But one thing they could not find in US grocery stores was Kefir, a 2,000-year-old drink made of cultured milk, popular in Russia and purported to deliver almost supernatural health benefits. So Julie`s dad started making it, and distributing it through Russian delis and grocery stores in the US.

The business quickly took off, meeting the unmet need of a growing post-Cold-War Russian immigrant community. But he wanted others to reap the health benefits of Kefir, so he reformulated it, adding flavors that would appeal to American tastes. "This was perhaps the first innovation [of Kefir] in 2,000 years," Julie said.

Lifeway`s business benefited from ideal market trends. Whole Foods was expanding, riding and contributing to a growing interest in natural foods. Yogurt companies were too uncomfortable to talk about "probiotics" and mention "bacteria," creating a natural opening for Lifeway, which was unabashed about the bacteria that gave their natural probiotic products its healthful effects.

Now venture capitalists look for such openings as opportunistic windows to make money. But in my experience, the entrepreneurs that actually build the companies VCs look to fund are rarely motivated by timing. They are driven by a personal, pre-existing commitment that just happens to fit the times. This commitment builds the support of a close community that persists, in the face of doubters, because they believe what they are doing matters.

"You have to be extremely passionate about what you are doing," Julie shared with me. "For my dad, it was his life. It was a group and family effort; we had friends helping. You will get so many people telling you no, slamming the door in your face. But remember all those `nos` are a sign for how passionate you are. You will get through that."

Like LWAY and the 1,500 credit union executives I had the joy of meeting today, the answers to the following questions may unlock the enormous power of community for you:

  1. What is your pre-existing commitment?
  2. What community are you here to serve?
  3. If you set aside market trends and opportunities, and instead committed to your passion, to something you are willing to persist through slammed doors for, what would that thing be   For More