How do the mighty fall? Can decline be detected early and avoided? How far can a company fall before the path toward doom becomes inevitable and unshakeable? How can companies reverse course?
The first lesson taught at business school is that the business environment is always changing, that your business degree will be obsolete 18 months after completion. This is a very sobering thought given how expensive these business degrees are.
The general rule for entrepreneurs is to always keep up to date with current trends. You snooze you lose.
You can be on top of your game today, but gone tomorrow.
The recent announcement of the bankruptcy of Aca Joe, Hilton Weiner, Jenni Button and the woes of Edcon (the owners of Edgars and other chain stores) is another reminder that the business environment is always changing.
Jim Collins author of Good to Great and Built to Last, researched how to built sustainable and great companies. The companies he studied were the best and sustainable companies.
After the 1998 financial crisis, most of the “best” and “great” companies Collins referred to filed for bankruptcy. Questions were raised about Collins’s research and how is it that his great and lasting companies bulked under the recession and fell when they were supposed to be “built to last.”
In response Jim Collins then went to research these companies again and subsequently released a book: How The Mighty Fall: And Why Some Companies Never Give In.
Aca Joe, Jenni Button, Hilton Weiner, Fannie Mae, Freddie Mae, Enron, Worldcom and other entrepreneurial businesses were once great, built to last but at the moment they have fallen.
Entrepreneurs are not surprised by this development because they face bankruptcy on a daily basis. Successful entrepreneurs have failed before.
Failure is painful, but it’s part of the entrepreneurship journey. If you are not prepared to fail, don’t be an entrepreneur. You will fail, the question should not be “what if I fail.” the question should “then what, after I have failed.”
Every institution, no matter how great, is vulnerable to decline. There is no law of nature that the most powerful will inevitably remain at the top. Anyone can fall and most eventually do.
Decline, it turns out, is largely self-inflicted, and the path to recovery lies largely within our own hands. We are not imprisoned by our circumstance, our history, or even our staggering defeats along the way. As long as we never get entirely knocked out of the game, hope always remains. The mighty can fall, but they can often rise again.
When you are at the top of the world, the most powerful nation on Earth, the most successful company in your industry, the best player in your game, your very power and success might cover up the fact that you are already on the path to decline.
So, how would you know? How do the mighty fall? If some of the greatest companies in history can collapse from iconic to irrelevant, what might we learn by studying their demise, and how can others avoid their fate?
Stages of How The Mighty Fall:
Stage 1: Hubris Born of Success.
Great enterprises can become insulated by success; accumulated momentum can carry a business forward, for a while, even if its leaders make poor decisions or lose discipline.
Stage 1 kicks in when people become arrogant, regarding success virtually as an entitlement, and they lose sight of the true underlying factors that created success in the first place.
When entrepreneurs succeed, they start to believe that they are invisible, that they are walking on water. This is usually where problems start.
When the rhetoric of success (“We are successful because we do these specific things”) replaces penetrating understanding and insight (“Where successful because we understand why we do these specific things and under what conditions they would no longer work”), decline will very likely follow.
Stage 2: Undisciplined Pursuit of More.
Hubris from Stage 1 (“We are so great, we can do anything!”) leads right into Stage 2, the Undisciplined Pursuit of More, more scale, more growth, more acclaim, more of whatever those in power see as “success.”
Companies in Stage 2 stray from the disciplined creativity that led them to greatness in the first place, making undisciplined leaps into areas where they cannot be great or growing faster than they can achieve with excellence, or both.
When a business grows beyond its ability to fill its key seats with the right people, it has set itself up for a fall. Although complacency and resistance to change remain dangers to any successful enterprise, over-reaching better captures how the mighty fall.
Biting more than you can chew is a recipe for choking.
Stage 3: Denial of Risk and Peril.
As companies move into Stage 3, internal warning signs begin to mount, yet external results remain strong enough to “explain away” disturbing data or to suggest that the difficulties are “temporary” or “cyclic” or “not that bad,” and “nothing is fundamentally wrong.” This is when management bury their heads in the sand, see no evil, hear no evil and say no evil.
In Stage 3, leaders discount negative data, amplify positive data, and put a positive spin on ambiguous data. Those in power start to blame external factors (it’s the fault of the recession, competition is tougher now with the arrival of Zara, it’s the fault of Chinese textiles sector) for setbacks rather than accept responsibility for lack of innovation, failure to analyse the changing environment and changing strategies.
The vigorous, fact-based and reality check dialogues that characterises high-performance teams diminishes or disappears altogether.
When those in power begin to risk the business by taking intoxicatingly high risks and acting in a way that denies the consequences of those risks, they are headed straight for Stage 4.
Stage 4: Grasping for Salvation.
The cumulative peril and/or risks-gone-bad of Stage 3 assert themselves, throwing the enterprise into a sharp decline visible to all.
The critical question is: How does its leadership respond? By desperately pitching for a quick salvation or by getting back to the disciplines that brought about greatness in the first place? Those who grasp for salvation have fallen in Stage 4.
Common “saviors” include a charismatic visionary leader, a bold but untested strategy, a radical transformation, a dramatic cultural revolution, a hoped-for-blockbuster product, a “game changing” acquisition, or any number of other silver-bullet solutions.
Initial results from taking dramatic action may appear positive, but they do not last.
Stage 5: Capitulation to Irrelevance or Death.
The longer a company remains in Stage 4, repeatedly grasping for silver bullets, grasping for straws, the more likely it will spiral downward.
In Stage 5, accumulated setbacks and expensive false starts erode financial strength and individual spirit to such an extent that leaders abandon all hope of building a great future.
In some cases, their leaders just sell out, in other cases, the institution weakens into utter insignificance; and in the most extreme cases, the business simply dies outright.
Great Companies can stumble and fall badly. In certain cases they recover and rebuilt themselves and others not.
Will Jenni Button, Hilton Weiner, Aca Joe et al bounce back? Time will tell, but for now it’s back to the drawing board.