I just finished a very interesting book, called Hidden Champions of the Twenty-First Century, by Hermann Simon. This book is a fascinating look at some of the best and most successful unknown or “hidden” companies in the world. The author does a deep dive and tries to figure out what makes them so successful. I think this book is valuable to any investor, even though most of these companies are private.

This book asks a very, very important question: What makes a small or medium sized company a long term success?

Here are some interesting nuggets about Hidden Champions I took from the book:

1)Hidden Champions do not compete on price, but instead on quality and performance, and this is how they increase market share.

2)Hidden Champions spend double the R&D as a percentage of revenue compared to other companies.

3)These companies set really, ambitious growth targets. A favorite quote in the book: “Great successes always start with ambitious goals.”

4)Hidden Champions define their markets extremely narrowly and have market shares as high as 70% to 100%.

5)Two-thirds of hidden champions are located in rural areas. This creates mutual dependence on the company and employees.

6)Self-financing is and remains the most important source of financing.

7)There is a constant focus on reducing costs, no matter how well the company is doing.

8)Hidden Champions implement decentralized, customer focused corporate structure earl on.

9)When these companies diversify it is a soft-diversification, not into wildly disparate industries.

10)Combination of narrow market focus & superior performance is what insulates Hidden Champions from competition.

I recommend this book for any investor or person who wants to better understand companies and what makes them succeed.