Lessons from Failures
There are thousands of books written about business success and what an entrepreneur needs to do in order to build an outstanding company. Most of the advice, while often helpful, is rather formulaic and frequently based on the latest fashionable theory. Often when written in retrospect about a success, so many authors take a simplistic view of what made the company a success in the first place. In the inverse, when writing about failures the summaries of what went wrong are often equally bromidic, usually just covering the surface of what happened. It's always more complicated.
Ever since I was given an assignment in college to write about a failed company, I’ve been deeply fascinated by successful corporations, both big and small, that eventually failed. I just couldn’t reconcile in my head how smart people could run a company into the ground and sometimes do it at an astonishing pace, all while completely missing all the warning signs along the way. It got me thinking about turnarounds and what it takes to fix an otherwise broken company.
It’s easy to be an armchair critic and pile on failures and the obvious contributing factors to the downfall, but what captivates me most is the real story, the behind-the-scenes personalities and decisions that caused some of the biggest blunders to occur. If you search 2007 company pronouncements about the iPhone, it’s amazing how many prolific giant-company CEOs predicted its demise. What’s especially fascinating to note is that in virtually every case, these CEOs were actually expressing their wishful thinking as if it were fact. This alone is a strong indicator of how they manage their companies, and thus what what was probably a strong clue about their own eventual downfall.
The list of iconic names of some of the most spectacular failures still amazes me. At the top of the list, a company I’ve beaten to death in my writings here, is Kodak, whose demise was largely the result of the digital camera, something they actually invented in 1975. Imagine inventing something that puts others in business while you go under because of your own invention! That’s like getting shot with your own gun by the deer you went out to hunt.
What most of the press reports about this spectacular corporate lawn dart is that senior management believed that the commercial pursuit of digital imaging would harm their core film business. I somehow suspect that the truth runs much deeper. They had to know that if they didn’t pursue digital cameras, someone like Sony, Nikon, Canon, Panasonic, JVC and virtually everyone else would monkey-stomp their precious film business almost overnight. They had to know! Ostrich problem solving comes to mind.
Then there is Schwinn. It was THE bike to have when I was a kid. There was no other that came close. Every kid knew the name of every model and price point of every Schwinn made, including the name of every color in their printed catalog. There was nothing more fun than walking through a Schwinn store on a Saturday morning to see what was new. That company was so determined to have someone with the “Schwinn” name in the family that they never thought about true CEO qualifications as just one of their many problems. They missed the big picture with such frequency that their demise was no surprise, really. There had to be major dysfunction behind the scene that caused such shortsighted decisions, one right after the other.
Other giants that failed or are a mere fraction of their former size or are gone; Tupperware, Circuit City, Blockbuster, Nokia, Blackberry (RIM) and the list goes on and on. Nokia was the largest handset maker in the world with a 40% world market share in 2007 before the iPhone was released. They said at the time that the iPhone would be nothing more than a niche device. Again, keep in mind, these were all giant companies! That CEO is now burnt toast.
In many of these cases, there is a common theme, an internal arrogance that these companies and CEOs could somehow not be shaken from their position of leadership. Keep in mind, these were all companies with huge capital reserves and some of the best minds in the industry. Yet, all of these CEOs were completely out of touch with the reality of their fragile market position. Most fell like a house of cards with the release of the iPhone.
Most of my career has been around startups and small companies that grew out of a garage concept. When some of them lawn dart, I immediately want to know what went wrong. What I see so often is that initially successful companies fail because they outgrow the talents of their founding CEO yet all too often their shareholder position prevents any fair scrutiny of their true management performance, which is often overshadowed by an overblown ego that prevents any meaningful introspection until the company is in receivership. Even then it’s not their fault.
All too frequently, the market suddenly changes and the CEO is simply too shortsighted to notice that he’s tripped and about to face-plant the entire company. Because they are so out of touch with the industry, there is almost no warning that the company is done. The issue is further compounded when the board is made up of individuals who find it far more comfortable to simply remain silent and do nothing rather than risk their own cozy position. As the old saying goes, “How does a company go bankrupt? Slowly then suddenly.”
My love is fixing organizations that are somehow stuck, either because of capital limitations at an early stage often brought on by a highly dysfunctional company culture. In the case of the last company I acquired, I strongly believed in the people and I was willing to bet everything on their engineering skills in spite of other factors that had to be overcome. I knew that if I resolved the dysfunction, the company could progress much further. I fixed the glitch.
When I step in to help a company, the very first thing I want to understand is the CEO. I want to know how or if they contributed to whatever the issues are in front of them. I never assume anything until we talk. Some CEOs have done everything right yet are blindsided by something that nobody could foresee. I’ve looked at some really interesting companies that were taken rather far by the founding technologist that simply reached a point where they knew they were over their heads and felt it was time to hand the role to someone else so they could remain the CTO.
I met with one really outstanding technologist in the Midwest and I made an offer to buy his company. His VC source pushed him to remain as CEO far longer than he felt comfortable with miserable results. What I loved about the idea of working with him was that it wasn’t at all about ego. He just wanted to see the company he founded become a huge success. He knew that his best contribution would be in the form of a technologist and not a manager. I admired him for knowing his strengths. My offer was beaten by a company with much deeper pockets. It was definitely one that got away.
I always look at a company's four key components; the customers, shareholders, suppliers and employees. I examine each category very carefully to determine if there is something that requires immediate action. Most of the time, I'm focused on the behavior of the CEO to determine what's wrong with the organization that led up to the current issue. That relationship between the CEO and other managers will often point out a lot. I'm the coming weeks I'll be writing about where I like to focus my attention when looking at any company and how small tweaks can sometimes make all the difference. Stay tuned.