It’s the club every entrepreneur wants to join, but getting into the Fortune 500 isn’t easy. A company has to mature well beyond its start-up years to reach the revenue threshold, $4.825 billion for this year’s list. Of course, most never make it. The few companies that do make the list share five crucial traits:
No product, service, or strategy is sacred. Change is hard, but the regulars in the 500 are willing and able to change all those things as a shifting environment demands. IBM (IBM) (No. 20) used to make meat choppers and cheese slicers. General Electric (GE) (No. 8) made computers and cannons. You can’t get and stay big enough for the 500 without adapting continually.
Peter Drucker asked entrepreneurs if they really wanted to build an institution that would outlive them. Don’t aim for the 500 if you are on the fence on this issue (and many entrepreneurs are), because only long-term-oriented decisions will get you there. Sam Walton always managed Wal-Mart (WMT) (No. 1) for the long term. And don’t fear the myth that investors will punish you. Amazon (AMZN) (No. 49) consistently reports little or no profit, yet investors push the stock higher because they know CEO Jeff Bezos is investing for a payoff years from now.
Every company swears they have it, but few really do. The best ones know that human capital is their only source of sustainable competitive advantage. Google (GOOG), No. 55 less than nine years after going public, is famous for the rigor with which it makes hiring decisions. General Mills (GIS) (No. 169), which has been in the 500 every year since the list first appeared in 1955, runs one of America’s best leadership development programs. Both companies know what the scarce resource in business really is.
Strong ideas over financial capital
It wasn’t always true, but in today’s world you can build a 500-sized company with little financial capital — if you have 500-sized ideas. Exhibit A is Apple (AAPL) (No. 6), which manufactures nothing but is powered by imagination and creativity. The principle applies in every industry. What keeps 3M (MMM) (No. 101), Walt Disney (DIS) (No. 66), and Coca-Cola (KO) (No. 57) in the 500? Superior ideas, year after year.
The revenue threshold of the Fortune 500 has increased at a 4.3% real (inflation-adjusted) rate since the list started in 1955. Of course, giant companies could stay in the 500 without achieving such growth; they’d just fall in the ranking. Example: U.S. Steel, No. 3 in 1955, No. 147 today. Far more impressive are the smaller companies that have maintained or even advanced their positions. Textron (TXT) was No. 292 on the original list; it’s No. 225 today. Abbott Labs (ABT) was No. 320; today it’s No. 70.