Chapter 128 - The Essence of a Family Enterprise: Doing Business the Johnson Way
Today’s Chapter is based on the book “The Essence of a Family Enterprise: Doing Business the Johnson Way” by Samuel Curtis Johnson Jr.
Samuel Curtis Johnson Jr. was an American businessman and the fourth-generation leader of S. C. Johnson & Son, Inc., a major global consumer products company headquartered in Racine, Wisconsin. Under his leadership, the company grew from a regional wax business into a multibillion-dollar global enterprise, introducing well-known brands such as Raid, Glade, and Off!.
Here’s what I have learned:
Thinking Long-Term
“Someone's sitting in the shade today because someone planted a tree a long time ago.”
— Warren Buffett
At the core of Samuel Curtis Johnson’s business philosophy lies a fundamental distinction between family enterprises and publicly traded companies: the luxury and responsibility of a long-term perspective. Unburdened by the relentless pressure of quarterly earnings reports and appeasing thousands of disparate shareholders, a family business like Johnson Wax, later known as S.C. Johnson & Son, could make decisions destined to bear fruit generations later. This isn’t merely patience but a strategic imperative that shapes every decision, from investment to risk tolerance.
As a matter of fact, Johnson explains that "As a family enterprise, we have the opportunity to think for the long term. We have said on many occasions that we do not run our business for tomorrow, or the next quarter, or the next year, but for future generations. We can say that and still be credible because we have been a family business for four generations and look forward to being a family business in succeeding generations."
Johnson starkly contrasts this with the public company model, where the CEO's focus is often to please the stock market while the family enterprise, he argues, measures success in decades, not quarters. This long view fosters stability, encourages patient investment in research and development, and allows the company to weather inevitable storms without sacrificing its future for immediate gains. He mentions that "A CEO of a public company is beholden to literally thousands of individuals and interests. His time spent actually managing the business, trying to make money, is cut appreciably. The public CEO must take to the road to pump the company's stock, meeting with security analysts, talking to investment bankers, informing The Wall Street Journal reporters and newsmen from local papers."
"A public company does its utmost to enhance short-term earnings, numbers that appear in quarterly and annual reports: columns of black ink that keep shareholders happy, content, and quiet. But a family-controlled company manages its earnings from another perspective, with success measured in terms of years and decades, and not merely quarter-by-quarter."
— Samuel Curtis Johnson Jr.
Johnson’s business philosophy reflects a deep understanding that durable value is built with patience, careful stewardship, and a willingness to forego short-term wins for enduring progress. The company’s stability, he argues, comes not from stock performance but based on the company’s measured performance. As he once said, “We don’t get the huge upward or downward swings that you see in the stock market, but then I genuinely feel that the performance of the company is a better measure of long-term stock value than the psychological enthusiasm of the market.”
As such, it is with this perspective of building with future generations in mind that shapes the business identity of S.C. Johnson & Son. Throughout the generations, the Johnson family was always finding ways in order to maintain the family business for decades.
“It is now obvious to me that every generation of a family business has to bring something new to the enterprise: that is, something that hadn’t been thought of by—and beyond the visions of—the previous generations. It has happened in our family and will hopefully happen in the succeeding generations, or we will atrophy on existing products, markets, businesses, and geographic locations.”
— Samuel Curtis Johnson Jr.
This reminds me of the importance of long-term thinking in investing as we have learned from Terry Smith, the founder of Fundsmith. While it is easy to get distracted by quarterly earnings reports and daily market movements, Smith advocates for a long-term strategy aligning investment decisions with the natural lifespan of a business or an economic cycle. As such, he believes that evaluating a business or a fund’s performance over a brief period of time, such as a single year or quarter, is misguided.
One of Terry Smith’s favourite analogy to investing comes from the world of cycling. He believes there is a lot to learn about investing from the Tour de France. He points out that no rider has ever won every stage, nor is it likely, yet the race is won over the entirety of its 21 stages. Similarly, he suggests that outperforming the market in every reporting period is an unrealistic expectation for investors. This is especially true if you are overly concentrated in a few stocks. Instead, the goal should be consistent outperformance over longer horizons, such as a full economic cycle encompassing both bull and bear markets.
“In my view there is a moral here for investors. What we are trying to achieve with Fundsmith is to win the investment equivalent of the Tour de France for you—to outperform over a long period of time. However, we do not expect to outperform all the time or in all market conditions.”
— Terry Smith
Smith’s long-term approach to investing leads him to also criticize the concept that one is able to time the market. He believes that this is nearly impossible to master. As a matter of fact, in his anthology, Smith illustrates the peril of missing even a handful of the market’s best days, showing how such missteps can drastically erode returns. For example, he cites data from the S&P 500 over a decade, where missing the best ten days reduced the annual return from 12.07% to 6.89%, turning a $10,000 investment into just $19,476 instead of $31,260. This evidence underscores his belief that staying invested in quality companies over time is far more effective than attempting to time the market.
As a matter of fact, Smith emphasizes the compounding effect of holding quality investments over extended periods. He references the remarkable performance of companies like Colgate-Palmolive and Coca-Cola, which delivered compounded growth rates significantly higher than the market over 30 years, allowing investors to pay premiums far above market P/E ratios and still match or exceed index returns. This highlights the transformative power of patience and the reinvestment of retained earnings at high rates of return.
“It is always a mistaken strategy to wait for the shares to get below the point at which you sold them before repurchasing, or the even more common trait of waiting for a loss-making share purchase to get back to break-even before selling. As I am fond of saying, the shares are unlikely to follow this desired pattern since they do not know whether you own them or not or at what price you bought or sold.”
— Terry Smith
As such, one of Fundsmith greatest feature is the extremely low portfolio turnover reflecting Terry Smith’s long term approach to investing. In fact, Smith believes that frequent trading is detrimental to investment performance, as it incurs costs and increases the risk of making mistakes. Smith writes that “Minimising portfolio turnover remains one of our objectives and this was again achieved with a portfolio turnover of 2% during the period. It is perhaps more helpful to know that we spent a total of £496,507 or just 0.014% (1.4 basis points) of the fund on voluntary dealing which excludes dealing costs associated with fund subscriptions and redemptions as these are involuntary. Why is this important? It helps to minimise costs, and minimising the costs of investment is a vital contribution to achieving a satisfactory outcome as an investor.”
Innovate to Survive
“Innovation distinguishes between a leader and a follower.”
— Steve Jobs
As a leader of a family business, Samuel Curtis Johnson Jr. believed that the primary objective for a corporate leader is to ensure the survival of the company. And, as such, he mentions that “developing a survival strategy is what every company and every CEO is doing. To survive, you have to grow. To grow, you have to diversify. Therefore, diversification is essential to survival.”
In fact, Johnson genuinely believed that diversification wasn’t solely a growth strategy, but a necessity in order for the company to survive across generations. For example, while the family company started in parquet flooring, it quickly shifted to floor wax which saved the company. Johnson explains that “By 1917 the style of home decor had changed and parquet flooring had dropped in popularity. Had S. C. Johnson & Son not also been in the wax business, it would have suffered mightily. But in that year the company made its last shipment of flooring; diversification had actually taken the firm into a new era."
This early success instilled a culture of seeking new applications for wax and exploring new markets. As Johnson once said, “if the wax worked so well on floors, what about on other surfaces?” He saw diversification as the antidote to atrophy and obsolescence. He presented a stark warning through the cautionary tale of Schlitz Brewery, which failed to diversify its offerings as consumer tastes evolved towards choice (light beers, dark beers, imports).
“It is important to note that our corporate health owes a great deal to these early and frequent diversification efforts. Companies that are extinct today, like the Schlitz Brewery, failed to recognize the need to spread risk. You see, Schlitz management believed that the beer business would continue growing in the same pattern that it had for years, that if you had one good brand, it was all you needed. Beer drinkers, however, began demanding a choice. They wanted light beers, dark beers, and foreign beers, and were willing to drink all three from the same brewer if they were only offered the option. Some brewers recognized this and were able to capitalize on the consumers' demands for choice. Michelob, for example, comes in light, dark, and regular; their marketing plan has been a successful form of diversification. Schlitz, on the other hand, made several grievous business mistakes, but I think failing to diversify successfully was a most damaging error.”
— Samuel Curtis Johnson Jr.
Another way of adding diversification was to create multiple brands in the same company even if they were competing within themselves. Johnson genuinely believed that "Putting out brands that compete with others you own is a form of diversification which also expands the market, with the sum of the two putting the company further ahead. I am continually amazed that more companies do not follow this course, and that they still believe that only one product will appeal to everyone."
By consequence, Johnson understood that he had to create a supportive environment within the company that encourages creativity. Notably, he was known to challenge others to become more creative. As he once explained, “Challenging people is an essential part of fostering creativity. I like to think I have also contributed to this environment and to making Johnson Wax a place where creative thought can occur. It’s an atmosphere of stimulation, challenge, debate, constructive criticism, humor, and a willingness to come up with unusual ideas that may work or that may be so sublimely ridiculous that all of us, including the innovator, can laugh. Having a creative climate that rains no retribution for bad ideas is one that nurtures the good and practical notions. I hope the next generations of managers understand this vital ingredient of success.”
“There is in our business a pressing need for more creativity. Our company must redouble its efforts to encourage, watch for, and act upon the creative efforts of individuals. When we were a small company, ideas were not only discussed, but also captured and used.”
— Samuel Curtis Johnson Jr.
This reminds me of the story of Walt Disney. As discussed previously, due to the various setbacks in his early career, Walt Disney’s life was characterized by a relentless pursuit of creativity and innovation. As he once said, “To me it’s a slow way of liquidating. Let’s go forward or let’s sell the business.” From an early age, he showed an innate desire to experiment and create, pushing boundaries that others hadn’t even considered. His career as an animator and filmmaker was driven by the belief that art and technology could work together to create something entirely new.
As a matter of fact, Disney was never satisfied with the status quo. One of the most striking examples of his creative spirits lies in his early experiments with animation. When he was working at the Kansas City Film Ad Company, he began experimenting with animation techniques. However, his boss was reluctant to change and refused to allow him to try new things. As Diane Disney Miller explains, “He wanted to experiment with new ways of doing things, such as making drawings on several sheets of celluloid, then photographing them one above the other, pretty much the way he was to do them later in Hollywood; but the boss wouldn’t hear of it. ‘We’re doing all right the way it is,’ he protested.”
Unwilling to let his ideas stagnate, Disney borrowed a camera, built a makeshift studio in a garage, and began experimenting at night. He also borrowed all the books he could find on cartoon animation in the Kansas City Library to study. His relentless curiosity led to the development of groundbreaking techniques that would later revolutionize animation.
Disney’s creativity was also evident in his determination to create Snow White and the Seven Dwarfs, the first full-length animated feature film. Many in the industry doubted the project, calling it “Disney’s Folly.” Yet he pressed on, pouring his heart and soul into the film. The result was a masterpiece that not only silenced his critics but also changed the course of animation history. Diane Miller explains that “Snow White proved once more that the best and quickest way to make headway, although not the easiest way, is to do things no one has ever done before.”
And yet, I believe it is fair to say that Walt Disney innovated beyond the animated film industry with how he reimagined the concept of a theme park with Disneyland, introducing immersive storytelling into the realm of amusement. As Disney once said, “I wanted it to be a place where dreams come true.” Disneyland was a bold and unprecedented idea and the fact that he was able to achieve it without having any knowledge in building a theme park is a perfect example of his innovativeness and willingness to learn new things.
Furthermore, in my opinion, Disneyland is a perfect analogy to Disney’s philosophy of perpetual innovation which became the hallmark of Walt Disney’s career. He was never content to rest on his laurels; instead, he sought new challenges and opportunities to bring his vision to life.
“The way I see it, my park will never be finished. It’s something I can keep developing and adding to. A movie is different. Once I’ve wrapped it up and have turned it over to Technicolor to be processed, I’m through with it. … I’ve always wanted to work on something alive, something that keeps growing.”
— Walt Disney
Leadership
“The art of communication is the language of leadership.”
— James Humes
At the heart of a successful enterprise is a great leader and this doesn’t change when it comes to family businesses. In Johnson’s opinion, leadership is “in the most basic sense, it is the ability to bring a group of people together into a common and cooperative course of action.”
As such, the core quality that is required for any good leader is “the ability to communicate with other people: direct, face-to-face communication. You cannot lead by sitting in an office and thinking productive thoughts. You cannot lead by merely issuing memos.”
“Leadership, then, is a very personal thing. You, the leader, are trying to draw the optimum talent from every person in the organization. These include technical talents, creative talents, and routine talents, all of which are important to business success. The leader must organize these individuals so that they interact with each other in the best possible way, so that they are mutually supportive.”
— Samuel Curtis Johnson Jr.
However, more importantly, for a leader, is the ability to be great listeners. As a matter of fact, Johnson recognizes the danger that comes when leaders only hear what others think they want to hear. As he explains, “A leader has to be willing to listen, to be sensitive, to hear what other people are saying and, above all, to understand what they are really saying. It’s a fact that leaders don’t always hear the whole story, but are told what others think the leader wants to hear.” Instead, they should receive as much information as possible in order to make the best decisions possible.
“My personal decision-making process involves soaking up the best advice I can get from the people I think know the most about a given subject. When I’m confident I’ve gotten the best advice possible, then I’ll make up my mind.”
— Samuel Curtis Johnson Jr.
Furthermore, Johnson believes that a great leader do not take all the credit when they succeed but are not afraid to take risks and to take responsibilities when they are wrong. As he once said, “I have been wrong in my career plenty of times. I’ve been right more times, but I believe I’ve learned to accept making a mistake in a dignified way. If you’re not willing to be wrong or to make a mistake, then you can’t lead. Avoid the risks and you become a shepherd, not a leader.”
He elaborates that “Leaders, however, simply cannot take all the credit for success. In fact, a good leader tries to make heroes out of others. Most great leaders have monumental egos, so passing off credit isn’t always the easiest thing to do. Yet it’s crucial in building morale.”
This reminds me of the importance of effective communication that we have learned from Carl Braun. He believes that effective communication is crucial among an organisation. As a matter of fact, he highlights the importance of conveying thoughts clearly and respectfully. As mentioned above, mutual respect in communication is essential, as one would not like to be spoken to in a condescending tone. As he once said, "If we talk to a man as though he were a child, he is sure to resent it."
But more importantly, Braun believes in asking questions when communicating with others. He believes that asking questions allows you to better understand others and to foster an open exchange of ideas, which is essential in a meritocracy.
"One of the quickest ways of getting on a basis of friendly understanding with another man, is via the question-route. By questioning, we get attention—for a man can hardly answer questions without concentrating. By questioning, we become acquainted. And by questioning, we may often lead a man both to solve the problem for himself and to convince himself."
— Carl Braun
Furthermore, by asking questions, Braun mentions that one will avoid from being too pushy or forceful when sharing his or her own thoughts. As he explains, "If we want our opinions or beliefs to be accepted, the worst thing that we can do is to press too hard for them or to make a personal issue of them. Better not crowd for acceptance, but rather invite it." One way of doing this according to Braun is to use softening phrases like “it seems to me” or “perhaps” when expressing your own opinions or beliefs.
This should be a reminder that it is important to always understand both sides of the equation before you can have an opinion on the subject. As Charlie Munger once said, “I never allow myself to have an opinion on anything that I don’t know the other side’s argument better than they do.” In an organisation context, this allows business leaders to have all the information at hand to make a better decision.
On the same line of thought, if we are encouraged to ask questions, we must also be open to be questioned. As Braun mentions, it is important for us to embrace open discussion and questioning in the workplace. As such, we should not feel offended if we are questioned on our actions. Instead, we should see questions and discussion as an opportunity to help individuals and organisations progress.
"After all, if we will only think about it, we will see that a man questions us for one of two reasons. First, he doesn’t understand us perhaps. Much better have him tell us so than to leave us imagining that he does understand. Then, too, men question as a means of helping us—of saving us from error, or of getting us closer to the truth. In either case, we need their questioning."
— Carl Braun
Braun mentions that it is a big mistake to live life without being open to be criticised and questioned. As he explains, "Many men, if their work or methods are discussed, feel at once that they are being attacked. They fly to their own defense with bad, petty, or ill-considered arguments. They try to make the other man’s ideas or questions seem silly. They not only do no good, they make enemies. And they retard progress."
Braun also believes that refusing to talk when being questioned is also not ideal. He says, "Some men when their work is questioned or discussed, refuse to talk. They suffer the supposed injustice in hurt silence. They do themselves no good. But they do hinder the search for truth. They defeat the very purpose of organization— to make full use of everyone’s talents and ideas."
In fact, we should remember that it is only by being questioned that we can change our mind about things. And as Winston Churchill once said, “Those who never change their minds, never change anything.”
“The ability to destroy your ideas rapidly instead of slowly when the occasion is right is one of the most valuable things. You have to work hard on it. Ask yourself what are the arguments on the other side. It’s bad to have an opinion you’re proud of if you can’t state the arguments for the other side better than your opponents. This is a great mental discipline.”
— Charlie Munger
Beyond the Book
Read "Your organization sucks at innovating" by Farnam Street
Read "Innovation: The Attacker’s Advantage" by Farnam Street
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