Learning from the legacy of Ingvar Kamprad
Last year showed us a very different reality of business — one where fast growth is not the solution to all problems. In fact, the majority of the explosively growing companies have had to learn a new reality of business, one of slower but more profitable growth.
These experiences are a great reminder of the power of the business principles from possibly the all-time best Nordic retail entrepreneur, Ingvar Kamprad. The creation of Kamprad, IKEA, has been used as an exemplar by many famous business scholars and consultants, including Michael Porter.
IKEA has seen rapid growth from a significant home and furniture retailer to a truly global giant in the industry. Only in the 2000s has IKEA been able to take its revenues from 10 billion euros up to 44,6 billion euros. That is an increase of almost 330%. All the while generating substantial profits that have been the driving force to enable growth.
IKEA historical revenue (Source: Statista)
In his masterful IKEA culture bible, “The Testament of a Furniture Dealer”, Kamprad defines how IKEA should operate. That is quite far from the fast growth start-ups of today.
In the third principle, Kamprad states, “Let us be self-reliant in the matter of building up financial resources too”.
According to the book Legendary Letters, Mr Kamprad wanted IKEA to be self-reliant. Everything that IKEA did had to come from positive cash flow from operations.
This is not the fastest route to build new things. But that is the most financially sustainable model. That is also why IKEA has been such a robust company over the decades and has sustained all external turmoils. The conservative approach to growth has neither been a barrier to fast growth.
Little slower, but more profitable growth is not necessarily bad.
As the company grew, it generated more and more money for the expansion. It did take time, but that patience paid off handsomely. We all know IKEA as this huge global conglomerate that dominates home and furniture retailing worldwide.
IKEA indeed has more than 370 stores in more than 30 countries. With 44 billion € in revenues, it is one of the biggest European retailers and one of the biggest non-food retailers in the world.
Slow start to rapid growth
Even though the growth seems to have come rapidly, it results from a very long and patient process. IKEA was set up in 1943 by 17-year-old Ingvar Kamprad. Five years later, in 1948, IKEA moved into selling furniture.
Again five years later, in 1953, Ingvar Kamprad opened the first store in Älmhult, Sweden. Even though we all think of IKEA as one of the most international retailers around, it was 20 years after founding the company when the company went abroad as the first store in Norway was opened in 1963.
Ingvar Kamprad did not pour into the internationalization process right with full steam. It was in 1967 when he purchased a lot in the second international market, Finland. Unfortunately, the development of the store was blocked, and IKEA could not move into Finland. The second international launch came six years after Norway, in 1969 (Denmark).
So far, IKEA has operated only in the neighboring Nordic countries of Sweden, Norway, and Denmark. In the late ’60s, as IKEA was approaching the 30-year mark, the company had not moved outside Scandinavia. Real internationalization started in the 70s, opening eight new markets on three continents in one decade.
One has to remember that it takes 30 years for IKEA to accelerate its internationalization. How many of the current venture capitalists would be ready to wait for rapid growth for a decade, let alone three decades?
Timeline of IKEA store openings
Patience wins over speed?
The legendary investor Warren Buffett has repeatedly emphasized how time is the most critical growth leverage for any business. As revered as Mr. Buffett is in the business press, it is enormously difficult for companies (and investors) to follow his words and actions.
We are so hasty in our need to see fast growth that we often miss out on real long-term growth. Very few things in business are more difficult than managing rapid growth. Usually, it only leads to costly mistakes.
As Ingvar Kamprad writes in his nine rules: ”Wasting resources is a mortal sin at IKEA.” This relates to using less material for furniture as well as spending less on wasteful operations or offices.
Being careful and mindful about wasting resources is not about avoiding action and development. Business is all about forward-moving action, but that needs to happen in small steps. The smaller the step, the smaller the potential mistake.
But at the same time, the small steps accumulate over time. Just as the interests of investments compound over time, the progress compounds into significant business achievements. You don’t get the benefits of compounding without using the power of time.
Despite the constant barrage of advice about the winner-take-all competition, many of the best retail companies have not been first to their markets. There will always be a possibility to challenge the incumbents. Many thought that Amazon or Facebook would have become too big to challenge. Yet, the likes of Pinduoduo (Temu), Shopify or Walmart have arisen to challenge Amazon’s dominance. Similarly, TikTok has become a real challenger to Facebook.
Similarly, IKEA was not the first big box retailer to build big stores. It has had to challenge many big-box incumbents in the markets it has entered over time. Its excellent strategic differentiation has given IKEA the edge to outcompete almost all important competitors. IKEA has broken nearly all of the rules in the industry. That has given the company such a big moat that the competition has repeatedly failed to challenge IKEA.
The new breed of retailers should take a moment to learn from the retail giant of the past—Ingvar Kamprad’s principles of several lessons also for the future of retailing. Patience to take small steps rapidly is not the smallest of them.
“Most things still remain to be done. A glorious future!”