---
title: "Century-Old Gillette: The Essence of a Good Business"
description: "Founded in 1901, men's shaving brand Gillette has never seen its return on equity or return on capital fall below 10%, even in its worst years, according to its century-long annual report data. The article analyzes the essence of Gillette's good business, emphasizing the importance of customers paying premiums for subtle differences and high barriers to entry, and discusses brand, pricing, professional managers, change, entrepreneurship, and investment stages."
author: "敬畏市场先生"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
telephone: "+8615854817671"
published: "2017-06-15"
language: "en"
canonical: "https://xinjignxiao.com/en/articles/century-old-gillette-the-essence-of-a-good-business-b7138cb4/"
markdown: "https://xinjignxiao.com/en/articles/century-old-gillette-the-essence-of-a-good-business-b7138cb4.md"
original_source: "https://mp.weixin.qq.com/s/PGFe8WagOU4cDOrlS7U67w"
translation: "https://xinjignxiao.com/zh/articles/%E7%99%BE%E5%B9%B4%E5%90%89%E5%88%97-%E5%A5%BD%E7%94%9F%E6%84%8F%E7%9A%84%E6%9C%AC%E8%B4%A8-b7138cb4.md"
attribution: "New Distribution — https://xinjignxiao.com/en/articles/century-old-gillette-the-essence-of-a-good-business-b7138cb4/"
usage_policy: "https://xinjignxiao.com/ai-policy.txt"
---

# Century-Old Gillette: The Essence of a Good Business

> Founded in 1901, men's shaving brand Gillette has never seen its return on equity or return on capital fall below 10%, even in its worst years, according to its century-long annual report data. The article analyzes the essence of Gillette's good business, emphasizing the importance of customers paying premiums for subtle differences and high barriers to entry, and discusses brand, pricing, professional managers, change, entrepreneurship, and investment stages.

Click image for details
Click image for details
## Founded in 1901, men's shaving brand Gillette, according to its century-long annual report data, has never seen its return on equity or return on capital fall below 10%, even in its worst years.
## **1 / About the Business**
##  Businesses are inherently different from one another. Just like children, some are naturally gifted, scoring full marks and ranking first without much studying, while others have to work hard to compete for the top, and may not even achieve first place many times in their lives.
Razors are a very good business. In the 100 years after the company's founding, it raised a total of $35,000 in financing, but from its founding to 2004, it accumulated $17.1 billion in profits, paid $8.4 billion in dividends, and bought back several billion more. Even with such high dividend and buyback ratios, Gillette still achieved rapid growth, with sales revenue exceeding $10 billion and profits close to $2 billion in 2004.
Even in Gillette's **worst times, its return on equity and return on capital never fell below 10%**. How many businesses struggle hard but can't surpass this figure! In good years, Gillette's return on capital reached 50-100%.
Why is the razor business so "awesome"? I think there are two main points.
**A. Customers are willing to pay a premium for subtle differences.**
Although both good and bad razors can complete shaving, a bad razor takes time, doesn't shave cleanly, is painful, and can easily cause bleeding or even scarring if not careful. Using a bad razor causes discomfort every day, so wouldn't you willingly pay for a better one? Moreover, razors are used daily, and their quality is easily perceived. Therefore, consumers can clearly perceive subtle differences and are willing to pay a premium for them.
**B. Extremely high barriers.**
Razors seem like a simple thing, but after reviewing the entire history, I feel it's extremely difficult. In Gillette's history, many disruptive products took nearly 10 years of R&D, especially the later Trac II and Sensor.
Moreover, **this is not just a barrier in research and design, but also in production and craftsmanship**. According to Kilts, the factory producing blades is like a factory producing aerospace equipment; **razor blades are 50 times sharper than surgical scalpels**, and even a nick visible only under a microscope can cause pain and bleeding for the shaver.
It is this dual protection of patents and production that even a country like China, which specializes in copycatting, cannot replicate a good blade.
Any technology and craftsmanship cannot withstand time; **patents expire, and craftsmanship spreads**. Another remarkable aspect of razors is that in the 100 years since their birth, they have been in a continuous process of improvement: from the initial double-edged blade, to the slotted blade, to the Blue Blade, to stainless steel blades, to twin blades, to spring-mounted blades, to three blades. (Today, I went to the supermarket and bought the latest razor, which already has 5 blades + adjustable + electric.) **This improvement leads to continuous updates in technology and craftsmanship barriers**, **making it impossible for competitors to catch up**. Moreover, most changes are based on previous ones, so Gillette is not afraid of disruptive innovation (electric razors are not as good as blade shaving, and Gillette mitigated the risk through Braun).
So the key to razors is not the popular "razor handle and blade" profit model, nor is it the "high-tech + high-consumable" that makes money.
The "razor handle and blade" profit model is based on conditions A and B mentioned earlier (**A. Customers are willing to pay a premium for subtle differences.** B. Technical barriers.) Only when these are established. In the 1930s, Gillette, due to its products not keeping up, even implementing the "razor handle and blade" model, was still killed by AutoStrop. On the contrary, in its early days, without adopting the "razor handle and blade" model, it made a fortune due to patent protection.
**"High-tech + high-consumable" making money is also based on these conditions.** Many Gillette managers also understood it this way, so they acquired ballpoint pens, lighters, and Duracell batteries. At the time of acquisition, they were all high-tech products and high-consumables, but they all ended up failing. At the time of acquisition, they only met condition B, not condition A. Ballpoint pens and lighters were beaten badly by BIC's low cost + scale production. Worse, over time, these products no longer even met condition B.
Looking at Gillette's razors, **the more I look, the more it resembles Apple, and Moutai also has some similarities**.
Men fear entering the wrong industry, women fear marrying the wrong man. **The essence of business is very important**. Over 100 years, as long as conditions A and B were not destroyed, even a mediocre CEO could make Gillette's stock outperform the index, and a "great" one would send it to the sky. The only time Gillette stock lost big money was between 1930 and 1940, when condition B was broken (patent loss to AutoStrop) and condition A was weakened (the 10-year economic crisis reduced people's ability to pay premiums).
So for long-term investment, you must clearly think about what kind of business you are buying and whether the basic conditions for its establishment have changed.
**2 / About Brand and Price**
For products like Gillette, brand is very important because the brand directly enhances condition A. You need to tell consumers where your differences are so they are willing to pay a premium. **Price is secondary**. As long as you establish an impression in consumers' minds that you are better than competitors, when competitors use price wars, **if you are really in trouble, you only need to slightly lower prices to kill competitors.**
Looking back at the major crises in Gillette's history, there were four in total.
> The first was in the late 1920s, when AutoStrop overtook on patents;
>
> The second was the economic crisis in the 1930s, when low-quality, cheap blades were rampant (there were thousands of blade companies in the U.S. at the time);
>
> The third was in the 1960s, when Wilkinson introduced stainless steel blades;
>
> The fourth was in the 1970s, when BIC's low-priced disposable razors impacted.
Others, such as blind diversification, overstaffing, and institutional bloat, are not really issues.
**The first and third were essentially problems with condition B**. **The first was too severe; AutoStrop essentially killed Gillette** (since the Gillette brand still had value, they used the Gillette name, but in essence, the equity, management team, and even products were AutoStrop's); in the third, fortunately, Gillette kept up with new products and patched the hole.
**The second and fourth were essentially problems with price**. During the 30-year economic crisis, people were too poor to pay the premium, so they had to use inferior blades, but as income rose, they gradually turned to Gillette, and the legendary Spang, who took office in 1938, seized sports marketing and television as new media, bringing Gillette back to its peak.
For BIC's challenge in the 1970s, Gillette effectively lowered prices, and BIC's "low cost + scale" model had no effect. Instead, Gillette's own price cuts "killed 800 enemies and lost 1,000 of its own," triggering a decade-long debate between "iron" and "plastic," and it wasn't until returning to brand and advertising that Gillette blossomed again.
So, **the price butcher knife under internet thinking is not omnipotent; for companies with Gillette's attributes, use it cautiously**. (And many brand consumer goods actually have weak Gillette attributes). Companies with Gillette's attributes should use the "high mountain and flowing water" approach, **using price to raise gross margins, leaving room for advertising and marketing, enhancing the brand, and supporting premium and sales**. If reversed, you not only give profits to consumers for nothing but also make your image increasingly low-end.
Of course, if the foundation of conditions A and B for a product becomes weaker over time (after all, knowledge and craftsmanship spread), then you have to rely on BIC's "low cost + scale" and pick up the price butcher knife.
However, I deeply feel that making a brand and making cost are not things you can switch to at will. Not only do the required capabilities differ, but the culture is completely different. So, retreating at the right time is the way to go.
**3 / About Professional Managers**
"Indeed, it's difficult to overpay the truly extraordinary CEO of a giant enterprise." I strongly agree with Buffett's evaluation of professional managers. But it must be said that excellent professional managers are as scarce as pandas.
Gillette **entered the era of professional managers after 1916**, and in nearly a hundred years, only two truly extraordinary CEOs emerged: Spang and Kilts. Most others just thought they were great.
Conversely, ordinary professional managers cause the greatest value destruction to companies with Gillette's attributes in three ways.
**First, control of cash flow**. Companies with Gillette's attributes are inevitably huge cash generators. Zeien bought Duracell for $8.4 billion in 1996, and five years later, it couldn't be sold for even $2 billion. In five years, the difference was $6 billion, considering annual profits were only over a billion. (Fortunately, it was bought with inflated stock.)
**Second, institutional bloat and overstaffing**. It's too hard for a CEO to downsize and increase efficiency, especially for CEOs promoted from within. If an internal CEO wants to cut departments and directly lay off people, how could they feel comfortable? They are brothers from the trenches; maybe the head of the department to be cut supported them in the CEO competition. Anyway, they are just drawing a salary without many shares. For the shareholders' money, is it worth cutting off their own brothers? I wouldn't do it either. So, without huge external pressure, don't hold out hope! Mockler talked for ten years, but it wasn't until the barbarians were at the gate that he took real action. After less than 10 years, the old problem recurred, and it wasn't until the parachuted Kilts took office that he became ruthless. (Think of IBM's downsizing, which ultimately relied on external Gerstner, right?)
**Third, short-term for long-term**. What to do when the economy is bad and competition intensifies? You can't cut your brothers, so you have to push inventory, lower prices, and promote. But if lowering prices and promotions affect profits, then cut advertising and R&D to fill in this period's profits first.
But advertising for a brand is like Pavlov training dogs; once the stimulus stops, the conditioned reflex weakens. For companies with Gillette's attributes, this is a fundamental injury. You see, when Kilts came to Gillette, he found that from 1995 to 2000, the company's advertising spending had dropped from 9% to 6%, while promotional and sales expenses had risen to over 10%, and he immediately reversed the two. One is "building" market share, benefiting the present and the future; the other is "buying" market share, enjoying a moment of pleasure but suffering a hundred days of discomfort.
Professional managers seek no merit but also no fault. These three potential "faults" must be closely monitored.
**4 / About Change and Competition**
The only constant in the world is change.
Before looking closely at Gillette, one might assume razors can't change much. But along the way, it has been ever-changing. Let's not even mention product changes; that simple thing has undergone how many innovations. **Behind product changes are the discovery of new materials** (stainless steel), **the realization of new processes** (coatings, computer design), and so on.
**Besides the product itself, marketing media has changed**, from newspapers to radio, to television, to the internet; **marketing carriers have changed**, from the military to sports events; **channels have changed**, from small shops, to big customers, to modern retail systems, and now to the internet.
Gillette was lucky to initially seize newspapers and the military to build its brand, which allowed it to survive the 1930s, then seize television and sports in the 1940s-1950s to regain its strength, and later leverage modern retail systems. But recently, because it didn't seize the internet era, Dollar Shave Club, through online membership direct sales, has eroded Gillette's share.
People say that many century-old companies in Japan and Germany stick to one thing and perfect it, and thus think that's the secret to a century-long business. Looking at Gillette, combined with IBM and a rough look at Walgreens, I deeply feel that **these companies have lasted a century because they keep up with the times**. Gillette is like this, IBM is like this (IBM always serves customers' information processing needs, but its current products and business model have nothing to do with punch cards from a hundred years ago), and Walgreens is also like this (Walgreens' current store formats and locations are completely different from a hundred years ago, when food and beverage accounted for more than half of store revenue).
History is cruel, and time waits for no one. **Every change can be a re-ranking for a company**.
The same goes for business and investment. Buffett emphasizes moats, which is about finding businesses that change slowly and are easy to adapt to change; venture capital is about finding businesses that adapt to change and disrupt existing ones. They seem different, but in essence, both focus on change and thinking about change, and both sides are opportunities.
**5 / About Entrepreneurship and Founders**
Entrepreneurship is difficult, with tears and blood behind it, but they don't say it. A company as "awesome" as Gillette took ten years from conceiving the idea to earning its first penny, and nearly died several times in between. So, **people and teams are really key, even more key than the idea.**
It's said that Gillette invented the razor, but Gillette's key lies in **rich imagination** (he thought of this idea, and of course other ideas that failed), **confidence and persistence** (he held onto the idea for 7 years without giving up), **and great marketing skills** (he persuaded some people around him of this unreliable idea and found the technical genius Nickerson). **But the downside of such people is a lack of technical skills, a tendency to be visionary in management, and a tendency to be overconfident**. (Does this remind you of early Steve Jobs?)
Fortunately, **Gillette found the technical genius Nickerson**, who improved Gillette's prototype and designed a set of production equipment and processes, achieving scale and low-cost production. (Does this remind you of Apple's technical genius Stephen Gary Wozniak?)
He also **met the successful manager and professional investor Joyce**, who not only provided the urgently needed funds in the early days but also brought in Wall Street talent and professional management, restraining Gillette in management to prevent the high-speed train from derailing. (Does this remind you of Apple's early investor Mike Markkula?)
Everything depends on human effort. Without any one of Gillette, Nickerson, or Joyce, there would be no Gillette today. **This is the power of teamwork!**
**6 / About Investment Stages**
Looking at Gillette's century-long history, there are three best investment stages: 1. **Rapid penetration period**, from its founding to 1925, when it quickly entered thousands of households with good products, multiplying in value thousands of times; 2. **Turnaround period**, from 1940 to 1960, when market share returned from 18% to 70%, with both valuation and performance doubling, multiplying in value over a hundred times; 3. **Streamlining period**, from 1985 to 1997, also with valuation and profit doubling, nearly 20 times (revenue growth of 1-2 times, profit margin growth of one time, valuation growth of 2 times).
Each opportunity lasted over ten years, with about 20 years between opportunities. **The key variable for the first two is penetration rate / market share, and for the latter, it's profit margin.**
The worst stages: 1. **Barrier disappearance stage**, in 1930, valuation dropped from $230 million to $40 million; 2. **Economic depression stage**, in the 1930s, valuation dropped from $40 million to $6 million. **The former is the disappearance of condition B, and the latter is the weakening of condition A.**
Other times are junk periods, slightly better than the index. **Once consumer goods pass the penetration rate and market share stage, achieving growth of over 10%, higher than GDP, is too difficult even for a category as good as razors**. You can only rely on external expansion, but not everyone is Buffett.
**New Distribution's "7th B-end E-commerce Study Tour" is now recruiting!**
**Activity Process:**
> June 19-23, Suzhou · Shanghai · Hangzhou
> 19th: Check in at designated hotel in Suzhou;
> 20th: Visit Suzhou Medlion;
> 21st: Visit Shanghai Hd;
> 22nd: Visit Hangzhou Wangcang;
> 23rd: Return or free time for sightseeing;
**Introduction to Study Platforms:**
**Medlion**
Yousoft Software, a well-known domestic information system provider, launched the "Medlion" brand in 2015. Based on Yousoft's software products, with artificial intelligence technology as its internal strength and efficient operation as a breakthrough, Medlion helps distributors create a new B2B business model. It has provided software technical services to distributors in more than 50 cities nationwide.
**Hd Company**
Shanghai Hd Information Engineering Co., Ltd. (hereinafter referred to as: Hd Company): a domestic first-class management consulting and software R&D company for commercial circulation, e-commerce, and modern logistics solutions.
Since its establishment over 20 years ago, it has been committed to creating modern commercial management models for customers. Hd's systematic products and solutions with independent intellectual property rights have strong competitiveness in the three major business formats of chain retail, commercial real estate, and warehousing logistics. It currently supports more than 500 well-known large and medium-sized commercial enterprises and group users across 30 provinces and cities nationwide. It is the largest retail software provider in China.
**Wangcang**
Zhejiang Wangcang Technology Co., Ltd. was established in June 2011 and is the earliest and currently the only large-scale independent fourth-party intelligent warehousing and distribution service provider in China. Wangcang has been committed to innovation, implementation, and daily operations of refined and collaborative solutions for e-commerce enterprise warehousing and distribution. Today, Wangcang has the capability to provide solutions from B2C e-commerce warehousing and distribution to B2B+B2C full supply chain integration (warehousing and distribution).
Relying on its self-developed adaptive warehousing and distribution comprehensive management system, combined with years of warehouse construction and management experience, as well as self-developed equipment, Wangcang has formed comprehensive competitive advantages. Wangcang's system can seamlessly connect with all sales platforms, enterprise ERPs, logistics and express resources, and in-warehouse operation resources (such as equipment, labor, and storage area applications). Through our services, single-warehouse efficiency can be greatly improved, achieving resource interaction and allocation between warehouses. Through big data, we provide value-added services such as supply chain optimization and supply chain finance for cargo owners. At the same time, through open systems and management advantages, we provide franchise business for warehouse owners.
**Organization Form**
************1. Company visit
2. Actual market case visit
3. On-site explanation
4. One-on-one communication************
Participating distributor friends only need to pay a registration fee of 200 yuan
Other expenses are self-covered
Long press this QR code or click "Read Original" to register
**Long press QR code to add WeChat for registration**
**Previous Study Tour Group Photos:**
**6th B-end E-commerce Study Tour group photo, from top to bottom: Zhongke Shangruan, Shuhai Supply Chain, Yunmei Co., Yishang Logistics.**
**5th B-end E-commerce Study Tour group photo, from top to bottom: Huiwangxing, Beiquan, Tongying Tianxia, Quanshihui, Zhongke Shangruan.**
**4th B-end E-commerce Study Tour group photo, from top to bottom: Alibaba Retail Link, Qianmi Network.**
**Click "Read Original" to register**
-END-


---

## Copyright and AI use

This article is sourced from New Distribution. Search, quotation, summarization, and model training are permitted, but every use must credit New Distribution and retain the canonical source URL.

Contact: zhaobo258@gmail.com · +86 158 5481 7671