I just finished reading Jim Collins’ latest book; a short one titled How the Mighty Fall and Why Some Companies Never Give In. I’m a big fan of Collins’ writings, including his prior works, Built to Last and Good to Great. Both of the prior works focused on the light side of business; assessing the factors that contribute to a company’s success. As Collins’ points out, in How the Mighty Fall, he’s turned to the dark side; analyzing failure.
Analyzing failure is unfortunately prone to post-hoc analysis and revisionist history. As a result, Collins takes an empirical and analytical approach to the process. The companies Collins analyzes are necessarily large, public companies. Despite this, there are many key takeways from the book that are applicable to emerging growth companies; two of which I wanted to capture.
Takeaway 1: Pride Cometh Before the Fall
There is a great synergy between How the Mighty Fall and Collins’ prior works, in that failure is to some degree the mirror image of success. In Good to Great, Collins’ concludes that a single personality trait separates leaders of good companies from leaders of great companies; humility. It is no surprise then that the first “marker” of the impending decline of a great company is the replacement of “humility” with “hubris”. If your Company is growing and looks as if it will be successful, the right response is utter paranoia; of competition, of a shift in your market, of anything that can take your business off track. But most of all, you must be paranoid that hubris sets in and your team starts believing its own press. It is a surefire sign; perhaps the first sign; that your company is at risk.
Takeaway 2: The Fatal Wounds are Self-Inflicted
Decline can be reversed if caught early. Hubris can be re-replaced with the humility required for an organization to question assumptions, to come to grip with the harsh reality and with the persevering drive necessary to harness great market opportunities. But if caught, “hubris” leads to a series of bad decisions that are disconnected with the core mission of the organization. It is like an airline crash; rarely caused by a cataclysmic damage, but rather by a series of bad decisions (none of which is fatal in isolation) that compound on one another. This quote from Collins on the back cover of Why the Mighty Fall pretty much sums it up.
“Whether you prevail or fail, endure or die, depends more on what you do to yourself than on what the world does to you.”
There is no shortage of ways to fail. But to summarize Collins’ findings, the things companies do to themselves that cause them to fail include pursing growth that is undisciplined or that can’t be digested by the organization, increasing the risk profile of the business by pursuing non-core ventures, incessant restructuring and choosing to blame outside factors for failures rather than looking in the mirror. The nature of these items is noteworthy; as Collins points out, it is not complacency that kills most companies, but rather, doing too much. The good news is that the process of decline is not irreversible. So if you see hubris seeping into your emerging growth business and see your organization making decisions that are inconsistent with the organizations core, abiding values, return to your roots, look internally, assess the situation without panic and make sure you have the right people in the right seats to work your way out of it, slowly, methodically, surely. There will be no magic bullets.
Success has 1,000 fathers and failure none. But we can learn a lot from the mistakes of others. Better to learn that way than to learn by repeating others’ mistakes and wasting a lot of capital in the process.