Earlier this year, one of the richest and most famous men you’ve never heard of—Ingvar Kamprad—celebrated his 90th birthday. Though his name might not be too familiar to you, chances are you’ve come across some of his company’s creations over the course of your life.
And who knows? You might even be sitting on one of them right this second.
Kamprad, of course, is the founder of IKEA, the Sweden-based self-assembled furniture conglomerate that has been slowly but surely taking over the world (at least the furniture world). To date, IKEA has had success in North America, Europe, Asia and the Middle East, among other regions.
IKEA, which came into existence in 1943, is known for producing eco-friendly furniture that doesn’t end up costing a bunch, partially due to the fact that customers are expected to put together the items they purchase at their own homes or offices.
Why is that?
In 1956, one IKEA worker suggested that the company should remove legs from tables because it would make the product easier to ship and easier for a customer to transport. Yes, the customer would have to screw in the legs on their own. But this approach proved to drastically reduced freight costs—and the company passed on the associated cost savings to its customers.
IKEA quickly rolled out the self-assembly approach across the organization, and the furniture company became exceptionally competitive right away.
The story of IKEA’s growth and long-lasting dominance is a fascinating one. But it’s also one that can have huge implications on your own business or career. Just remember one thing: The pointers below must be self-assembled (or at least applied to your own specific situation). At least that’s the way IKEA would want it.
Reduce waste wherever and however you can
It’s been 60 years since IKEA revolutionized its approach to furniture by adopting the self-assembly model. But that doesn’t mean the company has rested on its laurels since then.
Part of the reason IKEA is so successful is due to the fact that the company hates waste—so much so that it’s been accused of avoiding paying €1 billion in taxes over the last six years. It’s rumored that the company routinely moves money from high-tax countries to tax havens. Beyond that, the company is “owned” by the nonprofit Stichting INGKA Foundation, which Kamprad controls. All told, IKEA pays a paltry 3.5% in taxes on its whopping $27 billion in annual sales. If taxes can be considered wasteful spending, IKEA seems to have solved a conundrum.
But paying taxes isn’t the only thing the company looks down on. In 2010, IKEA figured out a way to pack its three-cushion sofa even more compactly into a box. Believe it or not, this new breakthrough resulted in both a reduction in carbon dioxide emissions—it’s now more efficient to ship the box—and a cost savings of $100 per unit. The company was able to shave the corresponding price tag down accordingly.
The takeaway? Trim the fat whenever you can. Your customers will thank you.
You can’t do everything on your own
According to its own data, when IKEA started off, it owned all of its stores and franchises. It wasn’t until 1984 that the company began to adopt a traditional franchise-franchisee model.
Since 1984, however, not only have IKEA’s own stores grown tremendously—from about 60 to 284 in the year 2010—the company has also slowly but surely increased the number of franchises it has from a handful to 35. By agreement, franchises pay 3% of their sales to the parent company as a royalty. Not too shabby for the parent company, eh?
While IKEA—which is still a private company—might have liked to control all of its stores, the company realized that it was better off franchising stores in some instances, particularly in Asia and the Middle East. As a result of this foresight, the company’s bottom line has grown considerably over the last few decades.
Do things differently
When you go to a run-of-the-mill furniture store, chances are you’ll come across various sections of the store dedicated to specific rooms in your home: the kitchen section, the bedroom section, the dining room section, the bathroom section, what have you.
Not so in the world of IKEA. The stores are laid out in such a way that more or less forces you to walk around the entirety of them—shortcuts are hard to find. Sleek displays feature all sorts of products that shoppers didn’t know they wanted in the first place. But a combination of aesthetics and price convinces them they’d be foolish not to throw such-and-such item into their carts.
IKEA’s success is rooted, at least in part, in the fact that it is nothing like any other furniture store. Since we increasingly crave experiences over material items (e.g., a fun shopping experience trumps owning a luxury, top-end couch), it’s not hard to see why folks are drawn to the store.
Proceed with caution
There are countless examples of companies that have failed because they expanded too rapidly. One needn’t look further than Patch, the network of hyperlocal news sites previously owned by AOL. In an effort to control the local news space on a national level, Patch expanded vigorously in 2010—too quickly—growing from 30 to hundreds of news sites in a few short months. The decision backfired and Patch hemorrhaged hundreds of millions of dollars before it was ultimately sold to Hale Global.
Though it has stores all across the globe, IKEA didn’t make the same mistake. When it expands into new markets, it proceeds with caution. For example, when the Swedish furniture juggernaut eyed an expansion into South Korea, it wasn’t until six years after the first scouting trip there that an IKEA store officially opened.
Though there were a few hiccups in that launch, the patience has paid off.
Everyone loves paying less
IKEA’s business model is based on volume. How else can you make a ton of money off of low prices?
So IKEA makes the same products—like the Billy bookcase—over and over and over again. Eventually, this results in lower supplier and production costs, which enables IKEA to actually lower its prices over time. For example, the original Lack coffee table originally cost about $11 when it was released in 1981. Fast-forward 35 years later, and now it retails for about $6.
Can you think about a company that’s been around forever and lowers its prices over time?
In today’s uncertain economy, who doesn’t want to pay less for quality goods? This successful philosophy can be traced back to Kamprad himself, who is notoriously frugal. Though he’s a billionaire, the man is known to fly economy, buy the cheapest milk possible, and drive a 15-year-old Volvo.
Innovate, innovate, innovate
Despite its worldwide reach and multibillion-dollar recurring revenues, IKEA continues to innovate. The company comes out with upwards of 2,000 new products each year.
And no, it’s not as if IKEA has a team of geniuses who just intuitively understand what customers want. Members of its design team actually do a ton of research to determine which pieces people feel are missing from their houses. They visit customers’ homes, asking questions, making observations and taking pictures. The data gleaned from those trips are then analyzed digitally, and trends are identified.
By continuing to create new products its customers want, IKEA has had no problem remaining relevant over the past seven decades.
Time will tell whether the conglomerate continues filling up people’s homes and offices all around the world. But if the company’s past is any indicator, IKEA appears poised to assemble its own successful future.