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Week of 7 Nov 2016: How to add innovation to our industry

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The track record of Amazon earnings is remarkably poor. Yet, while a private company, and now as a public company, it has been supported by investors to an extent that is truly astounding. With this support, Amazon has been innovative beyond all measures and is a leader in the future of retail, logistics and even, dare I say, manufacturing, as we finish up the first 16% of the twenty-first century. Always operating on a thin profit margin, it has been investors that have fueled this growth engine.

Why can't we have this kind of innovation in the pulp and paper industry? We don't have this kind of innovation for the same reason Amazon does have it--the nature of stockholders. There is innovation in our industry where we have the right kind of stockholders; for instance, in Georgia-Pacific and Pratt Industries, which are privately held. For the portions of the industry where ownership is held by public stockholders, not so much (disclosure: I do not directly hold investments in any pulp and paper company; Pratt Industries has been a long term, but not continuous, client of my consulting company).


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This still does not explain the disparity, however. After all, Amazon has public stockholders, and so does, to pick an example, International Paper. The difference requires a dive a bit deeper. I'll suggest that the stockholders of Amazon, by and large, have a greater appetite for risk than do the stockholders of International Paper. Said another way, IP may be more of a "widows and orphans" stock while Amazon is held by the "Yacht Rock" crowd. In other words, Amazon is held by a younger group that is willing to take risks.

If the problem is in the investor group, I have a suggestion to strengthen innovation in our industry: recast the major publicly traded paper companies into having three classes of stock.

It works this way. Class A stock is an overarching class that participates in all the joys and sorrows of Major Paper Company. Class A stock covers the entire gamut of the enterprise. Class B stock is weighted towards the legacy businesses of Major Paper Company--it is the "widows and orphans" stock, much like the publicly traded stock of Major Paper Company today. Class C stock is the innovation stock--it is weighted towards the innovation activities of Major Paper Company.

Class C is the high risk, high reward piece of the company. It invests in the innovations. It may even be targeted towards investments in very specific innovations. If Major Paper Company had several innovation initiatives going, there could be Class C1, C2, C3 stocks, and so forth. By some formula, and after some passage of time, the various Class C stocks could be redeemable for outsized portions of Class A or B stock if successful, or die a natural death if their individual innovation initiatives expire.


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The secret to innovation is to carve out the risk of innovation and allocate it to investors who have the attitude to handle it. Then, it is no different from Amazon and, indeed, will attract the same kind of investors that Amazon attracts.

We are a gray haired old industry because we market our stock to investors with no stomach for risks. Change the nature of the investor pool and I am convinced we can be as innovative as Amazon.

In case you haven't figured it out yet, November is Innovation and Strategy Month at Paperitalo Publications. If you have any topics you want us to cover, drop me a line at

You may wish to take our quiz this week. It is online here.

For safety this week, innovations have brought us many safety improvements in my career. One of the earliest, now ubiquitous and unnoticed, is the GFI receptacle. No telling how many lives it has saved.

Be safe and we will talk next week.


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