Danaher: A Culture of Continuous Improvement Part 1
“Don’t let perfect get in the way of better.”
The following is part of the premium newsletter exploring owner-operators and cultures of publicly traded companies. Keep in mind I may own or have owned the company discussed. None of this is investment advice, do your own due diligence.
Find the archive of companies and people explored here
Danaher is the industrial giant few have heard of. How unknown it is despite its global prominence—it manufactured everything from lab equipment for molecular testing, hospital equipment, water testing equipment, truck parts to the chair in your dentist’s office—is a cliche in itself.
Yet, what’s mentioned even less is how Danaher was one of the first companies to deploy lean methodologies into its operations. This was before the software companies made it cool. In fact, Danaher's been able to do it successfully over ~30 years from the world of trucks to lab testing equipment while acquiring 400+ companies.
Fundamental to Danaher’s success over the years was the Danaher Business System (DBS). It was, and still is, Danaher’s competitive advantage. It’s how they uphold their core belief that “The Best Team Wins.”
Big in Plain Sight
Today, Danaher (DHR) has a market cap of ~$210b. In 2020, it had sales of $22b, operating profits of ~$4b and ~$5 in free cash flow. Netflix—a company we’re familiar with for comparison—has a market cap of ~$230b and had sales of ~$24b. Yes, it is a consumer media business so it makes sense we know it. But DHR has a similar size and it touches our lives in more ways than we realize.
It was founded in 1984 by the Rales brothers, Steven and Mitchell Rales. The brothers operated a commercial real estate business called DMG in the late 60s—it was the predecessor of DHR.
The brothers wanted to move away from that business and had the idea to acquire and fix up manufacturing businesses. DHR was born, as a result, named after the Danaher river they often fished at and came up with the idea for the business. Since starting out with a dozen businesses, DHR has acquired ~450 businesses over its nearly 40-year history.
The ~450 businesses are split up into 20+ operating companies that operate as independent companies with their own C-suite and executive teams. They are further categorized under three platforms: Life Sciences, Diagnostics, and Environmental & Applied Solutions.
Though it’s headquartered in Washington D.C. its operating businesses are everywhere. It’s a business with ~69k employees with more than 50% operating outside the U.S.
In 2020, only ~40% of its sales were attributable to North America, the next largest region was the high-growth market—made up of countries in Eastern Europe, the Middle East, Africa, and developing Asian nations—that made up 30% of sales.
DHR is big, but it was bigger before. I mentioned DHR had three platforms the 20+ operating businesses were categorized into. This is what the operation looks like today: