Why Successful Companies Often Fail
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By Edward D. Hess,
Distinguished Executive in Residence and
Adjunct Professor of Management, Goizueta Graduate School of Business
Emory University
Atlanta, Georgia
edward_hess@bus.emory.edu
We all know the general
statistics that most companies, ~ 70% fail within five years of
start-up. Why? Many companies fail because of deaths, illnesses,
divorces, loss of a key customer or supplier, inadequate capitalization,
or failure to attract enough profitable customers. Let's assume
you made it through the start-up phase and have reached a successful
level of greater than $5 million in revenues.
YOU CANNOT STOP!
Based on my 30 years of working with growth companies, many successful
businesses fail because the business builder loses his or her
focus, intensity, and passion for managing the details of the
business on an everyday basis. Businesses decline because the
entrepreneur quits doing what he or she did to make the business
successful. This occurs because of fatigue, boredom, laziness,
or arrogance.
Operating at a high
level of intensity and focus every day for years is hard. It becomes
harder as you achieve some success. Entrepreneurs are human, too,
and they can become bored, lazy, or tired. Unfortunately, when
owners lose their intensity, passion, and focus; employees see
it, feel it, and consequently, employees lose their intensity
and focus, too. This is the paradox of success. To stay successful,
you cannot stop doing what made you successful. Success is never
a permanent state.
Having the business
lose its edge is bad enough. But sometimes, the decline does not
end there. What do entrepreneurs do when they get bored? They
may miss the thrill of a challenge or they may miss the emotional
high of living on the edge. So some do unwise things to regain
the thrill - they diversify. They diversify either the business
or their personal life - or both. Acquisitions, territorial expansions,
new investments, golf, horses, or an active social life are all
possibilities. All of the above are not necessarily bad; it depends
on the circumstances. If they take more focus, time, and capital
away from the core business, they may hasten the decline of the
core business. Destruction of value can come from losing your
edge. It comes much faster when you diversify and dilute your
efforts. "Stick to your knitting" is not bad
advice.
STAYING SUCCESSFUL IS HARDER
To stay successful, you cannot stop doing what made you successful.
Staying successful is harder than becoming successful. Let me
make sure you understand what I am talking about. I am not talking
about a successful entrepreneur who gets tired or bored, and as
a result, makes a conscious life choice to exit the business and
reap the value he or she has created before the business slides
or plateaus. I am also not talking about an engaged entrepreneur
who grows the business by expansion or acquisition. I am, however,
talking about a successful entrepreneur who gets bored and instead
of facing that challenge directly, decides to diversity his or
her business or personal life and, as a result, begins to destroy
the value he or she has created.
How do you avoid destroying the value which you worked so hard
to create?
1) Recognize the
Problem - Be honest with yourself and deal directly with boredom
or tiredness, or arrogance. As soon as you lose your fear of failure
and start feeling comfortable, you should look for warning signs,
e.g., starting work later; leaving work earlier; taking longer
lunches or having a beer or glass of wine more frequently at lunch;
working four days a week; and losing patience with employees more
often. Having recognized the problem, what can you do?
2) Change the Game - Recognize that you will get bored
and your employees will get bored. People need new challenges.
You, as the leader, have to change the game frequently - redefine
the goals. Change what is measured. Look at what Jack Welsh did
at General Electric. He changed the goals at GE; he changed what
was being measured as the company kept improving. He went from
measuring being #1 or #2 in every product line to measuring 6
sigma to pushing digitization and then to being a learning company.
Every initiative was followed by another new challenging initiative.
It is your job as the leader to make work challenging and fun
for your employees. Another way to keep the intensity and the
game going is to focus on the bottom 25% of your business, those
customers or products or divisions or locations that are in the
bottom quarter of profitability. And keep rewarding employees
for new ways to increase productivity and efficiency.
3) Create A Villain - Make it personal that your competitor
wants to put you out of business and your employees out of their
jobs. Creating a villain works. Look at the Oracle, Sun, and Microsoft
competition. They fight each other in the marketplace like cats
and dogs.
4) Create a Check and Balance - Have independent, objective
board members or advisors who can tell you, "No, do not do
that." Tell them that their job is to prevent you from doing
something really stupid. Create a disciplined business and personal
investment review process which is followed rigorously.
5) Find Role Models for your employees in the sports or business
world - people who have performed at a high level of excellence
consistently for years such as Coach Pat Summitt, Coach John Wooden,
Michael Jordan, Nolan Ryan, Wayne Gretsky, Barry Bonds, Hank Aaron,
Richard Petty, Jack Nicklaus, etc. Read Sam Walton's or Howard
Schultz's books about Wal Mart and Starbucks. How did they maintain
the edge even after they became very successful?
6) Be Humble - Remember how you got to where you are and
who got you there. You cannot expect your employees to stay intensely
focused, dedicated and working long hours if you start coming
to work late in a new BMW or Mercedes, wearing a new Rolex watch
and new designer clothes. I cannot tell you how many times in
working with growth company problems, that employees and managers
have told me that the leader is not the same person that he or
she has changed and not for the better.
7) Every Day Is Showtime - Every day, your employees, your
customers, and your family depend on you to do what is right and
to do your job. Just as your employees owe you 100% effort every
day; you owe them 100% effort every day. Win in the game of business
one day at a time. Every day is showtime. Every day is game day.
You and your business
will reach plateaus along your business lifecycle. Recognize them,
deal with them directly and intelligently. Ask yourself why you
are doing something different and make sure it is for the right
reasons. You will get bored. You will get tired. You will change
as you become more successful. Recognize that this will happen.
Plan for it and develop a way to keep the challenge, intensity,
passion and fun going for you and your employees. To stay successful,
you cannot stop doing what made you successful. If you cannot
do that, then find the right valuation and liquidity cycles to
exit before you lose the value of what you have built.
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Copyright © 2003
