In his book Straight from the Gut, Jack Welch relates the story of the first time he was in front of Wall Street as CEO of General Electric. In a 20 minute speech he gave his audience a primer on what he felt it would take for a company to be viable in the long term. Winning companies he said would be the ones that search out and participate in real growth industries and insist on being Number One or Number Two in every business they are in. They would also be the Number One or Number Two leanest, lowest cost worldwide producers of quality goods and services. He told the Wall Street financial community that this was the strategy to which he would commit his company to the fullest effort imaginable.
After the meeting he admitted that his first speech to Wall Street was a bomb. The Wall Street crowd was looking for hard numbers. They wanted quantitative data. Instead, Welch gave them qualitative data, data that could not be plugged into their financial models. They did not know what to do with Jack’s speech.
Undaunted Jack proceeded with his strategy and in the first two years GE sold 71 businesses and product lines and received a little over $500 million. This gain was reinvested in another potentially stronger business. This process generated consistent earnings and it also was a manifestation of Welch’s central vision that GE leadership managed businesses not earnings. Accounting does not generate cash; managing businesses does.
