Last week I broke 2 sales records and had a HUGE personal victory on a project that I’ve worked on for over 3 years! Great victories are often followed by decadent revelries, spoils, and other activities that make you fat, lazy, and happy.
In fact, my father-in-law observed today that I should go treat myself to my dream car, a Mercedes G-Wagon:
Well sure, it would be awesome to drive a G-Wagon. But is it worth the money? Does driving a nice car make you better than those around you? NO WAY!
Simply put don’t let success get to your head. Buying luxury cars, living in opulent mansions, and spending tens-of-thousands of dollars partying does not define success. In fact, hubris born of success is the first phase of a successful entrepreneurs demise.
I subscribe to Jim Collins theory on How The Mighty Fall. In case you’ve never heard of Jim Collins, he’s a tremendous entrepreneur and the award-winning author of Good To Great, Built-To-Last, How The Mighty Fall, and Great By Choice. His books have had a profound impact on thousands of entrepreneurs, myself included!
When you are at the top of the world, the most powerful nation on Earth, the most successful company in your industry, the best player in your game, your very power and success might cover up the fact that you’re already on the path to decline. Having studied volumes of businesses that were successful and those that failed, Collins concluded that there are far more ways to fail than to become great.
A staged framework of how successful businesses fail emerged from Collins studies. I am a firm believer in this framework as I’ve personally witnessed successful marketers/businesses such as Willms, Johnson, Dee, Epic, Copeac, ccBill, OrangeCRM, and many others fail right in line with it.
Below is a summary of How The Mighty Fall. Several guys I know in the industry are on this path right now, and I’m willing to place a wager that many will either fall or become irrelevant in the next 24 months:
Stage 1: Hubris Born of Success.
Great enterprises can become insulated by success; accumulated momentum can carry an enterprise forward, for a while, even if its leaders make poor decisions or lose discipline.
Stage 1 kicks in when people become arrogant, regarding success virtually as an entitlement, and they lose sight of the true underlying factors that created success in the first place. When the rhetoric of success (“We’re successful because we do these specific things”) replaces penetrating understanding and insight (“Where successful because we understand why we do these specific things and under what conditions they would no longer work”), decline will very likely follow.
Luck and chance play a role in many successful outcomes, and those who fail to acknowledge the role luck may have played in their success – and thereby overestimate their own merit and capabilities – have succumbed to hubris.
Markers for Stage 1:
- · Success Entitlement, Arrogance: Success is viewed as “deserved,” rather than fortuitous, fleeting or even hard earned in the face of daunting odds; people begin to believe that success will continue almost no matter what the organization decides to do, or not do.
- · Neglect of a Primary Flywheel: Distracted by extraneous threats, adventures, and opportunities, leaders neglect a primary flywheel, failing to renew it with the same creative intensity that made it great in the first place.
- · “What” Replaces “Why”: The rhetoric of success (We’re successful because we do these specific things’) replaces understanding and insight (“We’re successful because we understand why we do these specific things and under what conditions they would no longer work”).
- · Decline in Learning Orientation: Leaders lose the inquisitiveness and learning orientation that mark those truly great individuals who, no matter how successful they become, maintain a learning curve as steep as when they first began their careers.
- · Discounting the Role of Luck: Instead of acknowledging that luck and fortuitous events might have played a helpful role, people begin to presume that success is due entirely to the superior qualities of the enterprise and its leadership.
Stage 2: Undisciplined Pursuit of More.
Hubris from Stage 1 (“We’re so great, we can do anything!”) leads right into Stage 2, the Undisciplined Pursuit of More – more scale, more growth, more acclaim, more of whatever those in power see as “success.” Companies in Stage 2 stray from the disciplined creativity that led them to greatness in the first place, making undisciplined leaps into areas where they cannot be great or growing faster than they can achieve with excellence, or both. When an organization grows beyond its ability to fill its key seats with the right people, it has set itself up for a fall.
Although complacency and resistance to change remain dangers to any successful enterprise, overreaching better captures how the mighty fall.
Markers for Stage 2:
- · Unsustainable Quest for Growth, Confusing Big with Great: Success creates pressure for more growth, setting up a vicious cycle of expectations; this strains people, the culture, and systems to the breaking point; unable to deliver consistent tactical excellence, the institution frays at the edges.
- · Undisciplined Discontinuous Leaps: The enterprise makes dramatic moves that fail at least one of the following tests:
1. Do they ignite passion and fit with the company’s core values?
2. Can the organization be the best in the world at these activities or in these arenas?
3. Will these activities help drive the organization’s economic or resource engine?
- · Declining Proportion of Right People in Key Seats: There is a declining proportion of right people in key seats, because of losing the right people and/or growing beyond the organization’s ability to get enough people to execute on that growth with excellence (e.g., breaking Packard’s Law).
- · Easy Cash Erodes Cost Discipline: The organization responds to increasing costs by increasing prices and revenues rather than increasing discipline.
- · Bureaucracy Subverts Discipline: A system of bureaucratic rules subverts the ethic of freedom and responsibility that marks a culture of discipline; people increasingly think in terms of “jobs” rather than responsibilities.
- · Problematic Succession of Power: The organization experiences leadership transition difficulties, be they in the form of poor succession planning, failure to groom excellent leaders from within, political turmoil, bad luck, or an unwise selection of successors.
- · Personal Interests Placed Above Organizational Interests: People in power allocate more for themselves or their constituents – more money, more privileges, more fame, more of the spoils of success – seeking to capitalize as much as possible in the short term, rather than investing primarily in building for greatness decades into the future.
Stage 3: Denial of Risk and Peril.
As companies move into Stage 3, internal warning signs begin to mount, yet external results remain strong enough to “explain away” disturbing data or to suggest that the difficulties are “temporary” or “cyclic” or “not that bad,” and “nothing is fundamentally wrong.”
In Stage 3, leaders discount negative data, amplify positive data, and put a positive spin on ambiguous data. Those in power start to blame external factors for setbacks rather than accept responsibility. The vigorous, fact-based dialogue that characterizes high-performance teams dwindles or disappears altogether. When those in power begin to imperil the enterprise by taking outsized risks and acting in a way that denies the consequences of those risks, they are headed straight for Stage 4.
Markers for Stage 3:
- · Amplify the Positive, Discount the Negative: There is a tendency to discount or explain away negative data rather than presume that something is wrong with the company; leaders highlight and amplify external praise and publicity.
- · Big Bets and Bold Goals without Empirical Validation: Leaders set audacious goals and/or make big bets that aren’t based on accumulated experience, or worse, that fly in the face of the facts.
- · Incurring Huge Downside Risk Based on Ambiguous Data: When faced with ambiguous data and decisions that have a potentially severe or catastrophic downside, leaders take a positive view of the data and run the risk of blowing a hole “below the waterline.”
- · Erosion of Healthy Team Dynamics: There is a marked decline in the quality and amount of dialogue and debate; there is a shift toward either consensus or dictatorial management rather than a process of argument and disagreement followed by unified commitment to execute decisions.
- · Externalizing Blame: Rather than accept full responsibility for setbacks and failures, leaders point to external factors or other people to affix blame.
- · Obsessive Reorganizations: Rather than confront the brutal realities, the enterprise chronically reorganizes; people are increasingly preoccupied with internal politics rather than external conditions.
- · Imperious Detachment: Those in power become more imperious and detached; symbols and perks of executive-class status amplify detachment; plus new office buildings may disconnect executives from daily life.
Stage 4: Grasping for Salvation.
The cumulative peril and/or risks-gone-bad of Stage 3 assert themselves, throwing the enterprise into a sharp decline visible to all. The critical question is, How does its leadership respond? By lurching for a quick salvation or by getting back to the disciplines that brought about greatness in the first place? Those who grasp for salvation have fallen in Stage 4.
Common “saviors” include a charismatic visionary leader, a bold but untested strategy, a radical transformation, a dramatic cultural revolution, a hoped-for-blockbuster product, a “game changing” acquisition, or any number of other silver-bullet solutions. Initial results from taking dramatic action may appear positive, but they do not last.
Marker for Stage 4:
- · A Series of Silver Bullets: There is a tendency to make dramatic, big moves, such as a “game-changing” acquisition or a discontinuous leap into a new strategy or an exciting innovation, in an attempt to quickly catalyze a breakthrough – and the do it again and again, lurching about from program to program, goal to goal, strategy to strategy, in a pattern of chronic inconsistency.
- · Grasping for a Leader-As-Savior: The board responds to threats and setbacks by searching for a charismatic leader and/or outside savior.
- · Panic and Haste: Instead of being calm, deliberate, and disciplined, people exhibit hasty, reactive behavior, bordering on panic.
- · Radical Change and “Revolution” with Fanfare: The language of “revolution” and “radical” change characterizes the new era: New Programs! New Cultures! New Strategies! Leaders engage in hoopla, spending a lot of energy trying to align and “motivate” people engaging in buzzwords and taglines.
- · Hype Precedes Results: Instead of setting expectations low – underscoring the duration and difficulty of the turnaround – leaders hype their visions, they “sell the future” to compensate for the lack of current results, initiating a pattern of overpromising and underdelivering.
- · Initial Upswing Followed by Disappointments: There is an initial burst of positive results, but they do not last; dashed hope follows dashed hope; the organization achieves no buildup, no cumulative momentum.
- · Confusion and Cynicism: People cannot easily articulate what the organization stands for; core values have eroded to the point of irrelevance; the organization has become “just another place to work,” a place to get a paycheck; people lose faith in their ability to triumph and prevail. Instead of passionately believing in the organization’s core values and purpose, people become distrustful, regarding visions and values as little more that PR and rhetoric.
- · Chronic Restructuring and Erosion of Financial Strength: Each failed initiative drains resources; cash flow and financial liquidity begin to decline; the organization undergoes multiple restructurings; options narrow and strategic decisions are increasingly dictated by circumstance.
Stage 5: Capitulation to Irrelevance or Death.
The longer a company remains in Stage 4, repeatedly grasping for silver bullets, the more likely it will spiral downward. In Stage 5, accumulated setbacks and expensive false starts erode financial strength and individual spirit to such an extent that leaders abandon all hope of building a great future. In some cases, their leaders just sell out; in other cases, the institution atrophies into utter insignificance; and in the most extreme cases, the enterprise simply dies outright.
It is possible to skip a stage, although our research suggests that companies are likely to move through them in sequence.
Is There a Way Out? First, we do ourselves a disservice by studying only success. We learn more by examining why a great company fell into mediocrity (or worse) and comparing it to a company that sustained its success than we do by merely studying a successful enterprise.
Furthermore, one of the key to sustained performance lies in understanding how greatness can be lost. Better to learn from how others fell than to repeat their mistakes out of ignorance. Second, I ultimately see this as a work of well-founded hope. For one thing, with a roadmap of decline in hand, institutions heading downhill might be able to apply the breaks early and reverse course. For another, we’ve found companies that recovered – in some cases, coming back even stronger – after having crashed down into the depths of Stage 4. Companies like Nucor, Nordstrom, Disney, and IBM fell in the gloom at some point in their histories yet came back.
All companies go through ups and downs, and many show signs of Stage 1 or 2, or even Stage 3 or 4, at some point in their histories. Yet Stage 1 does not inevitably lead to Stage 5. Just because you may have made mistakes and fallen into the stages of decline does not seal your fate. So long as you never fall all the way to Stage 5, you can rebuild a great enterprise worthy of lasting.
Never give in.
– Be willing to change tactics, but never give up your core purpose. Be willing to kill failed business ideas, even to shutter big operations you’ve been in for a long time, but never give up on the idea of building a great company.
– Be willing to evolve into an entirely different portfolio of activities, even to the point of zero overlap with what you do today, but never give up on the principles that define your culture.
– Be willing to embrace the inevitability of creative destruction, but never give up on the discipline to create your own future.
– Be willing to embrace loss, to endure pain, to temporarily lose freedoms, but never give up faith in the ability to prevail.
– Be willing to form alliances with former adversaries, to accept necessary compromise, but neverever- give up your core values.
Failure is not so much a physical state as a state of mind: success is falling down, and getting up one more time, without end. Whether you prevail or fail, endure or die, depends more on what you do to yourself than on what the world does to you.
Here’s a few signs of looming failure that I’ve observed over the years:
1. Website that hasn’t been updated in over 6 months.
2. Continuous partying, shopping, and “cockyness” that comes with success without any major updates to the business model.
3. Ignoring major changes to an industry.
4. Acting superior to your friends and strategic partners.
5. Unwillingness to accept good advice and put it into play.
6. Loosening up work ethic in exchange of enjoyment of your success.
7. Feelings of omnipotence. When you’re on top there’s always someone hungrier below you looking to take over.
Here’s My Teams Core Value System. This keeps us grounded in reality and focused on success: