Why has a small company that has focused on just one product for 73 years seen its brand grow ever larger?

01 Recently, I visited a student’s enterprise and noticed something interesting. In their workshop, blue-and-yellow WD-40 cans were everywhere—nearly every employee had one on hand. Curious, I asked what it was used for. The owner smiled and explained: it’s a multipurpose can—effective for rust removal, lubrication, cleaning, and eliminating moisture from metal surfaces. And it’s not limited to machinery; it’s widely used in offices and homes alike, so they keep several on hand. That piqued my curiosity even more: what kind of product can do *so many* things? So we conducted a dedicated study of WD-40. In today’s Shanren Xing episode, we’ll explore this ‘hidden gem’ enterprise—a small company with an outsized brand—and examine the insights it offers. 02 In 1953, three engineers in San Diego, USA, developed a rust- and corrosion-inhibiting formula. They named it simply and bluntly: 'Water Displacement, 40th Formula'—hence WD-40. Later, the company itself adopted the same name. Initially, WD-40 was used to protect missiles from corrosion. Then it entered the consumer market—and then, something miraculous happened. Seventy-three years have passed, yet WD-40’s core product and formula remain virtually unchanged—the same blue-and-yellow can, no diversification into other products. Yet this small company not only survived—it thrived. Its product is sold worldwide, and its brand is deeply embedded in consumers’ minds. How did it achieve this? I believe the key lies in WD-40 transforming itself over those 73 years into *a habitual solution to problems*—not merely a seller of rust inhibitors. Is there a difference? Yes—these represent two entirely distinct business models. When I visit companies for exchanges, after the owner finishes introducing their products, I always ask: ‘If we set aside the question of *what* you sell, what is your company’s greatest strength? What do you most want customers to remember you for?’ Many owners ponder for a long time—only to circle back to their products. Today, many enterprises actively expand their product lines and extend into new categories in pursuit of growth. As a result, product portfolios swell, scale expands—but customer recognition dwindles, and brand identity blurs. That’s the crucial distinction: others sell *products*; WD-40 sells *‘What do I do when a problem arises?’*—a vital core element of becoming a true brand. Many people misunderstand branding, obsessing over logos, VI design, or slogans. These elements matter—but they’re not the essence. Let’s use the simplest, most direct definition: *A brand is a conditioned reflex.* When a customer thinks of a particular problem, who comes to mind first? That’s the brand. Toothache? Yunnan Baiyao. Thirst? Nongfu Spring. No product features or functions—just the *problem*. WD-40’s brilliance doesn’t lie in positioning itself as ‘the best lubricant.’ Rather, it positioned itself so that users think of it at the moment of rust, machine jamming, dampness, stiff parts—or even general cleaning.

(26) 'Real Records of Value Investing': Case Study of a Business with Economic Moats—WD-40-1

(Highlights the product’s high penetration rate—or large market scale.) • Current financial status of the company: • Financial accounting data reveal WD-40’s exceptionally strong profitability, sustained over many years: • Consistently high operating profit margin (25%–30%) • Net profit margin (15%–18%) • Return on equity (ROE) (35%–42%) • Strategic impact on the company’s future (if applicable): • To counteract declining revenue (a trend emerging in recent years), the company has adopted the following strategies: • Broadening its product portfolio: • Acquiring ‘Tri-Flow’ • Internally developing a higher-performance lubricant, T.A.L.5 • Acquiring Lava, a hand-soap brand • Question: Can these strategies drive value growth? • How the company operates and markets this business or product: • WD-40 outsources all manufacturing, packaging, and logistics for its lubricants. • With only 167 employees, it generates $144 million in revenue. • At its core, it is a sales-driven company—spending 10% of revenue annually on advertising and promotions. • It holds no proprietary formula. • WD-40’s economic moat (the above analysis supports the conclusion that WD-40 possesses an economic moat): • The data above reveal all hallmark traits of an economic moat: profitability significantly exceeding growth-based valuation. • Therefore, we must answer the following question (WD-40’s economic moat analysis)—focusing on: • Why haven’t competitors entered the market to steal customers and force WD-40 to lower prices? What deters competitors? • (1) Patents or technological barriers: • WD-40 holds no significant patents; any company could replicate the product. • (2) WD-40’s moat lies in pronounced customer lock-in: • Customer loyalty has been built over decades through consistent advertising and high satisfaction—making it extremely difficult for competitors to persuade users to switch. • The absence of disruptive new technologies actually benefits WD-40: competitors cannot lure users away with novel tech or superior products. • Relative to product price, the cost of searching for alternatives is high: • A WD-40 can costs under $5 and lasts for years. • Trying a substitute that saves just $1 offers negligible appeal—given the product’s long lifespan and low repurchase frequency, switching to a better alternative is inherently constrained. • Moreover, if the substitute fails, the consumer loses the full $4 purchase price. Even assuming a 75% success probability, the expected gain is only $0.75 (75% × $1), while the expected loss is $1 (25% × $4)—making substitution a net losing proposition. • Beyond marginal economics, one must also factor in the time and hassle involved in seeking alternatives.

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