So I started reading, actually listening to, “How the Mighty Fall” by Jim Collins for the 3rd time. I could remember back to companies I had worked for who were at the top of their game during the time I was there, and then suddenly, or over a short time period, seemed to implode and fall from grace. At the time I could not understand why what seemed like a solid company from the outside could, in a short time, just fall apart. After listening to what Jim had to say I looked back on the companies I had worked for and was able to see their demise. So with that said I have summarized the first 3 stages that companies go through when they fall from their plateau of greatness.
Stage 1. Hubris Born of Success
Defined as arrogant neglect, or in ancient times; excessive pride that brings down a hero, or his favorite definition, according to Jay Ruffis Fears; outrageous arrogance that inflicts suffering on the innocent.
The worst for of hubris he explains as being arrogant neglect. He talks about an interview with the CEO of Circuit City, who at that time was on the top of the world and the leading electronics store in the US. When asked “what investors should worry about “ he replied, “the investors can be relaxed about our ability to run the business well, this is a company that is in great shape”. Yet Circuit City went through all 5 stages in 10 years and filed for bankruptcy.
When a company becomes enamored with their success and sits on their Loral they lose momentum. He equates this to getting one fly wheel going, you must keep that going at the same speed while starting a new one in which you need to have the same passion and determination for success with.
To remain successful you need to keep the first flywheel going, which is what Circuit City didn’t do.
1. You build a successful flywheel.
2. New opportunities will sustain your current flywheel.
3. You divert your attention and neglect your primary flywheel.
4. The new ventures fail and when you go back to your primary flywheel it’s wobbling and losing momentum.
“A core business that meets a fundamental human need for which you have become the best in the world rarely becomes obsolete.”
This is not saying you should not move ahead with new ventures, but you MUST have the resources to keep the first flywheel going while putting your efforts towards the next.
The outcome of Circuit City ignoring their primary fly wheel because of Hubris lead to a wide open market for which Best Buy soon took over.
Stage 2. Undisciplined pursuit of more
Big acquisitions and projects that do not focus on your core business and are taken out of bravado can bring you down.
He talks about Ames and how their growth was not in their core business. This allowed an opening for little known (at the time) Wal-Mart to move in and start to chip away at their core business.
What kills companies, based on their data, is not complacency but rather over reaching their bounds. In only 3 of 11 cases did they find that the company did not innovate (A&P, Scott Paper, Zenith).
1. Motorola increased their number of patents by almost 80%
2. Merc increased its patents on new compounds making it the best performance in its industry.
3. HP launched its “Invent Campaign” and doubled its patents.
“Growth that erodes tactical excellence will bring a company down.”
“Growing to fast, and not having the resources to back this growth will bring a company down.”
Stage 3: Denial of Risk and Peril
This is the invincible thought process that when your on top nothing can bring you down. The lack of understanding, or better put, seeing the market as it is and not how you want it to be because you think you are so great that you will never fail.
He talks about Motorola’s blind launch of Iridium despite the mounting evidence not to launch this cell phone product caused them to default on their loans and in 1 year file for bankruptcy.
He contrasts this case study with one about Texas Instruments gradual growth where they invested time and small amounts of money on researching the market and their product to gain a better idea of the impact and volatility it would have in the market. They built their flywheel over time and gave it momentum to grow naturally. They dared their big leap only after they were able to build enough momentum and evidence over 2 decades and had the weight of empirical evidence on their site.
It seems as though it comes down to a similar variable in many of the cases he points out. What’s that variable, well you will have to read the book to find out. All kidding aside it’s one of the best business books that I have listened to/read.
There is also a new article we wrote titled A Charles Darwin Quote Explains Why Most Big Companies Fail At SEO. This article is specific to big business and why they tend to fall short when it comes to SEO efforts when Google changes their algorithm.