I really enjoy reading in my spare time, and while it would be easy to gravitate towards mindless novels like “The Hunger Games” or “Fifty Shades of Grey” I actually prefer to read books on management, leadership, economics and the occasional biography.

I’ve always been a fan of Jim Collins and his prior work “Good to Great” and “Build to Last” but I always thought there was something missing in his observations. There are thousands of companies that start out small, grow and become successful and dominate their industry but very few maintain their position in the market let alone survive for 20, 40 or even 100 years.

I stumbled across this book at the airport during a trip to New Jersey for a wedding. It had only been a couple years since the US (and the world, for that matter) slipped into a deep recession, so I was surprised to see a book like this on the shelves so quickly. After reading the preface, I realized this was exactly what every business leader should be reading right now, regardless of the state of the economy or their business.

“How the Mighty Fall” discusses the five step-wise stages of decline: Stage 1: Hubris Born of Success, Stage 2: Undisciplined Pursuit of More, Stage 3: Denial of Risk and Peril, Stage 4: Grasping for Salvation and Stage 5: Capitulation to Irrelevance or Death. Since I’m short on space, I am going to highlight one stage at a time.

Stage 1: Hubris Born of Success

The ancient Greeks defined the concept of hubris as excessive pride that brings down a hero. Collins further explains that companies with excessive pride often take undisciplined leaps into areas where a company has no prior experience while ignoring their core business.

Successful companies do not become great overnight. It involves a sustained, cumulative effort, akin to turning a giant, heavy flywheel. You cannot make a ten-ton flywheel spin with one big push; it take years and often decades to get it moving smoothly and efficiently.

If an organization focuses all of its energy on one task (i.e. turning a flywheel, developing software or building highways) it will become an expert and a market leader over time. However, too often, once an organization gets one flywheel going, it may try to start up a second, third oreven forth flywheel out of boredom or perceived opportunities.

There are countless companies that have tried to master multiple markets because they were successful in their first venture. In today’s fast paced world that we live in, success is often viewed as deserved or entitled, rather than accidental, momentary, or even hard earned. Unfortunately, people begin to “drink their own Kool-Aid” and believe that success will continue no matter what the organization decides to do next.

This is where most companies start to trip themselves up. A company with lack of discipline and focus will start to divert creative attention to new flywheels and fail to improve upon their primary flywheel as before.

I call this the “shiny-object syndrome” and have seen it countless times during by days as a consultant. An executive sees something fun and exciting outside of its “boring” day-to-day product or service and chases it until he sees another opportunity and begins to chase it, then another and another, ad infinitum, until he and his staff are so confused that they don’t know what to work on anymore.

In the flywheel example, the new flywheels either take longer to spin than expected, require more resources than planned, or they simply don’t spin and fail from the start. Unfortunately, once a company begins to turn its energy and focus back to its primary flywheel, they may find it losing momentum, wobbling or completely off the track.

I have seen this first hand and can attest that once you divert any substantial time and energy away from your primary flywheel, core competency or in simple terms, your cash cow, you may find your cow has dried up and can no longer support itself and the various pet projects that you wanted to focus on from the start.

Make sure you don’t confuse these statements as “don’t ever change your business.” There are dozens of well known and well respected companies that have gone out of business because they refused to change. This is what Collins refers to as “confusing what and why.”

Companies need to understand the underlying causes of their success. That is the “why” in the statement. Wal-Mart became one of the largest companies in the world not just because it sells a lot of stuff, it started with a vision: “We save people money so they can live better.” Everything else that it did to build the company was centered on that idea, and as it grew it continued to develop efficiencies in purchasing, distribution and merchandising so its end user, the customer, can enjoy greater savings.

Wal-Mart’s biggest competitor throughout the ‘70s and ‘80s was Ames Department Store and though it was larger, better known and more successful than Wal-Mart in the early ‘80s, it is now long gone and Wal-Mart is the second largest company in the world.

What happened? How did Wal-Mart overcome Ames, which was the dominant force in the retail world for so many years? A big part of the answer resides in Sam Walton’s deep humility for his success and his strong desire to learn from others and improve upon Wal-Mart’s core business. Meanwhile, his arrogant competitor maintained the stance that “we will continue to keep things just the way they are and we will continue to be successful because-well, we’re Ames!”

Ames and its leaders were certainly arrogant, and one could argue that karma may have played a part in driving Ames into the ground, but it was more likely the culture that inevitably destroyed Ames from the inside out.

Walton and, more importantly, the people that he hired were highly inquisitive and continually wanted to learn. Becoming #1 wasn’t the end goal for Walton and Wal-Mart as it was for Ames; it was a byproduct of its efforts to provide its customer with the lowest priced products “so they could live better.” The “why” in a company’s mission statement can never be achieved; it can only guide a business to focus and improve upon its primary flywheel.

The most important lesson that I learned from this first stage isn’t so much what made Wal-Mart, or any other major brand, so successful, but rather, what went wrong with Ames.

Think about some of the other major brands that are either long gone or are shadows of what they once were: Circuit City, Blockbuster, Montgomery Ward, Mervyns, TWA. Also, think about what will happen to others like Research In Motion (Blackberry), Suzuki and Pacific Sunwear in the coming year. Where did they go wrong and what lessons can you learn from their mistakes?

In the next installment, I’ll touch on the second stage: Undisciplined Pursuit of More, which is exactly what Ames and others, including Rubbermaid and Merck, did while at the top of their industries and the price they ultimately paid.

~TJM

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For more information on Jim Collins and his other publications, please visit www.JimCollins.com
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2009 Caterpillar D6TXL
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Contact: Travis Mottet
Phone: (619) 987-0437
Email: TJM@JPMmachinery.com

A number of years ago my two best friends moved from Phoenix (where we grew up) to Colorado. One landed in Colorado Springs and the other moved to Westminster, north of Denver. Growing up, the three of us lived within a few miles of each other and did just about everything together; we were all involved in Boy Scouts (all earning Eagle Scout), we went snow skiing, took road trips and stayed up most nights playing video games.

After high school we went to separate colleges in Washington, California and Arizona. I never moved back to Arizona after being bit by the San Diego bug and one friend spent a year back in Arizona for work then moved to Colorado to get married and to start his career in civil engineering. The third friend stayed in Arizona, got married and started working in information technology. However, he eventually made his way too and started a family of his own.

The three of us never really lost touch but we didn’t get a chance to see each other often enough. New careers and new families took up most of our time and it became harder and hard to “make time to see each other.” Over the past few years as our lives have started to settle down we made a pact to get together at least once a year.

So far, the trips have been absolutely fantastic; we’ve golfed in Taos, mountain biked in Keystone, attended a few beer festivals, and recently shot trap and toured a few microbreweries.

During my last trip, Colorado Springs and parts of west Denver were plagued with a series of forest fires. You could hardly see the magnificent Rockies to the west of town with all of the smoke in the air. My friend in Colorado Springs was never in any immediate danger but the photos that he took from his back patio made it look like the entire city was on fire.

The day before I was scheduled to fly out we almost scrapped the whole trip due to the air quality and the fact that parts of Colorado Springs might have to evacuate. Thankfully, we decided to move forward with our plans; otherwise, I would have never been introduced to Stranahan’s Colorado Whiskey.

My friend in Westminster has been drinking whiskey for a long time, and now that he lives in Colorado, he’s a huge proponent of microbrews and anything local to Colorado. Only an hour into my trip he treated me to my first taste of Stranahan’s.

Being more of a “scotch” guy I didn’t think I would like a blended whiskey. I was dead wrong! This is one of the smoothest whiskeys I have ever had. It almost tastes like Irish Whiskey but it has a smooth flavor all its own. The only problem; you can only buy it in Colorado since they make it in very small batches. Oh well, I guess I’ll have to see my two best friends a little more often now.

~ TJM