Why "Evergreen Companies" Beat Venture Capital at Its Own Game with Dave Whorton

Overview

This episode explores the concept of evergreen companies, businesses designed for long-term sustainability, profitability, and purpose rather than rapid growth and quick exits. Dave Whorton, a former venture capitalist turned advocate for evergreen businesses, discusses the flaws in Silicon Valley's growth at all costs model and offers an alternative framework for building enduring companies. Drawing from his book Another Way and his work with the Tugboat Institute, Whorton highlights examples like See's Candies and Enterprise Rent-A-Car to illustrate the power of patience and purpose in business.

Notable Quotes

- Wisdom makes people realize that wealth really wasn't the endgame. The endgame was relationships, impact, and legacy. – Dave Whorton, on the true measure of success.

- If you're increasing economic profit, the bonus pool is getting bigger, the payouts are getting bigger. In a well-executed evergreen company, payouts can match base salaries. – Dave Whorton, on incentivizing employees without stock options.

- Most evergreen companies would never be funded by venture capitalists, but they can still become incredible businesses over a lifetime. – Dave Whorton, on the viability of alternative business models.

🌐 The Netscape IPO and Silicon Valley's Shift

- The 1995 Netscape IPO marked a turning point in Silicon Valley, introducing the get big fast model. Dave Whorton explains how this event disrupted traditional business practices, which previously required profitability and stability before going public.

- Venture capitalists began prioritizing rapid scaling over sustainable growth, leading to a high-risk, high-reward investment strategy.

- Whorton critiques this model, noting its unsuitability for many businesses and its tendency to prioritize short-term gains over long-term value.

🌱 The Evergreen Company Philosophy

- Evergreen companies focus on profitability, purpose, and enduring growth, aiming to last for generations.

- Whorton outlines the Evergreen 7 P's framework: Purpose, Perseverance, People First, Private, Profit, Paced Growth, and Pragmatic Innovation.

- Examples like See's Candies and Enterprise Rent-A-Car demonstrate how these principles create resilient, impactful businesses.

💡 Rethinking Employee Incentives

- Evergreen companies often lack stock options, so they use alternative incentive structures like the Evergreen Performance Incentive Plan (EPIP).

- EPIP ties bonuses to economic profit, offering uncapped rewards distributed over multiple years.

- Some companies also allow employees to buy shares through internal marketplaces, creating long-term wealth opportunities.

- Whorton highlights the success of ESOP (Employee Stock Ownership Plan) models, citing Torch Technologies, where employees have become millionaires through shared ownership.

🏢 Examples of Evergreen Success

- Companies like Panda Express, In-N-Out, Edward Jones, and Radio Flyer exemplify the evergreen model.

- See's Candies, acquired by Warren Buffett, has generated billions in excess cash without requiring additional capital, showcasing the power of patient, purpose-driven ownership.

- Whorton contrasts these businesses with Silicon Valley's living dead companies, arguing that long-term compounding growth can transform modest beginnings into significant enterprises.

🤔 Applying Evergreen Principles Beyond Business

- Whorton and Guy Kawasaki discuss the potential for applying evergreen principles to government and nonprofits.

- Nonprofits could achieve sustainability by developing self-funding models, reducing reliance on annual fundraising.

- Governments could benefit from long-term planning and financial independence, though political cycles often hinder such approaches.

- Whorton praises organizations like Norway's sovereign wealth fund for their patient, long-term investment strategies.