Sunday, March 18, 2012

How The Mighty Fall

Last week, I went to select a book for a short trip that I could easily carry and read quickly. Two books in my need-to-read pile fit this criteria: "Only The Paranoid Survive" by Andy Groves, and "How The Mighty Fall" by Jim Collins. At the time, I did not consider that these two books addressed the same topic. Both discuss challenges facing companies, and explain that some companies rise to the occasion while others falter. Andy Groves describes how Intel transitioned from memory to microprocessor, dealt with a Pentium flaw in 1994, and managed through the explosive growth of PCs. Intel overcame these potentially catastrophic events thorough disciplined pursuit of its core business philosophies. Jim Collins studies great companies that stumbled or failed in an attempt to understand the underlying causes of business decline.

I chose "How The Mighty Fall" which was a good read, and here are my takeaway points. Jim Collins looked for failed strategies or tactics, and instead he found common attitudes and behaviors in failing companies. He identifies five stages that chronicle companies that experienced a devastating decline relative to their peers:
  1. Hubris Born of Success
  2. Undisciplined Pursuit of More
  3. Denial of Risk and Peril
  4. Grasping for Salvation
  5. Capitulation to Irrelevance or Death
The book does a very good job detailing examples of each of these stages including the behaviors and attitudes of the management underlying the decline. I will not expand further upon the book's material here, but I do contend that each of these stages demonstrates a different failing in our human nature: hubris, lack of discipline, denial, desperation, and capitulation. Although we are all susceptible to human failings, I believe that our greatest leaders bring out the best in human nature, in themselves and in those around them. Great leaders have the character and strength of will to demonstrate positive behaviors even when facing daunting circumstances.

As an entrepreneur, I considered whether these stages of failure for large corporations apply to startups. I have seen similar behaviors limit the potential of many startups. Early success and rapid growth can lead to the first stage of hubris and the other stages can quickly follow. Scholars such as Jim Collins do not study the demise of the many no-name startups that show promise and then fail, but I suspect that the patterns in attitude and behavior are quite similar. I believe that in a startup, failure is more likely because the brand, customer base, capital, and other reserves are very thin. There is little margin for error, and the failings of leadership can be instantly deadly to a new company. One the other hand, I do know a few successful serial entrepreneurs who have demonstrated the ability to successfully lead and build new businesses from the ground up.

There is a quote in the book that exemplifies the role of strong leadership: The point of the struggle is not just to survive, but to build an enterprise that makes such a distinctive impact on the world it touches, and does so with superior performance, that it would leaving a gaping hole if it ceased to exist. To accomplish this requires leaders who retain faith that they can find a way to prevail in pursuit of a cause larger than mere survival and larger than themselves, while also maintaining the stoic will needed to take whatever actions must be taken, however excruciating, for the sake of the cause.

Being part of an organization that makes a distinctive impact on the world should be everyone's goal. In business, we all should relentlessly focus on those select areas in which we can be best in the world. At the company that I lead (ZTEC Instruments), we have a passion and dedication to provide the best instruments in the world to meet our customers test requirements by harnessing technology and our culture of excellence. 

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