This is the question that Jim Collins asked that led to his recently released book How the Mighty Fall: And Why Some Companies Never Give In. The context is Decline. Decline of a business, an organization, a country and I suppose about any other entity worth studying.
What can you learn about Business Growth and your own company from this short book? Consider the following:
- Your business has never been stronger, larger, more diversified and profitable. While you are riding the wave of tremendous success, how should you plan for the predictable challenges and bad times (like many companies are experiencing today) to sustain your business over the long-term?
- Conversely, your business is already struggling and the best days look like they may have passed you by. How can you recover your stride, live another day and begin to grow again?
- You have dedicated your business and management team to Growth, and have succeeded substantially, what can you learn about Sustainable & Profitable Growth to avoid the pot holes on the road to the future?
These and many others are ancillary questions that Collins studies in depth in his new book. But the big question to answer is: How Would You Know? How would you know that your business is showing the warning signs and red flags of decline?
As most know, Collins has been the guru of positive and profitable growth, authoring two ground breaking books, Built to Last (1994) and Good to Great (2001), as well as a plethora of articles, videos and speeches. His premise through his career has been to find high performing, growth-oriented companies by a paired analysis technique of two or more companies in a given industry. He then selects the best of the best and analyzes the reasons for their success. His work has largely been on the positive, growth side vs. as he calls it, The Dark Side.
However, this latest book does indeed delve into The Dark Side, in an effort to learn about the warning signs, find examples of companies that struggled mightily but would never give in, and provide some advice to company leaders to answer the big question: How Would You Know?
Mr. Collins ultimately studied many of the companies he researched in the past, and profiled how some of the very successful ones struggled and regained their footing or, declined, were acquired, filed for bankruptcy protection or ceased to exist. These companies included: Circuit City, Fannie May, A&P, Rubbermaid, IBM, HP and others.
His findings indicate that there are Five Stages of Decline that all of the declining companies experienced at one level or another:
- Stage 1: Hubris Born of Success, where great success creates arrogance on the parts of company leadership, who regard success and growth as a virtual entitlement. They begin to lose sight of the true foundations for their success to start with.
- Stage 2: Undisciplined Pursuit of More, where companies believe they can do anything and they are so great that they can’t fail, so they go for more growth, more scale, more personal recognition and just plain more of what their leaders feel they can do. This is direct contrast to the discipline that led them to be successful in the first place.
- Stage 3: Denial of Risk and Peril, when all of the internal warning signs and bells are going off about impending challenges, but external results continue to be strong. No one is worried. It’s sort of the Damn the torpedos mentality. However, when the results start to trend to the negative, leadership blames external factors to cover their asses and refuse to accept responsibility for what is so obvious to others is actually occurring.
- Stage 4: Grasping for Salvation, when the collective risk, danger and internal misalignment begins to come home to roost, pitching the company into clear and usually precipitous decline. According to Collins, the critical question is How does Leadership Respond? The options are typically to seek quick (and dirty) salvation, like a badly timed merger or a star CEO, or to calmly focus back on the discipline that brought the company success and greatness in the past with the resources and hidden assets the company possesses.
- Stage 5: Capitulation to Irrelevance or Death, at this point the nails are being hammered in the company coffin, so to speak. Accumulated setbacks, poor decisions and false starts has created a negative inertia that is difficult, if not impossible, to recover from and many companies simply abandon hope and the proverbial ship. Companies in this stage rarely recover, and usually are sold, merged or closed and cease to exist.