Last month I started a discussion on Jim Collins’ book “How the Might Fall” and focused on his first stage of decline; Hubris Born of Success.

This stage could be quickly summarized as losing one’s focus on what made the company successful in the first place; that is, its core competency. To put it in even simpler terms; drinking your own Kool-Aid and thinking everything you touch will naturally turn to gold.

Many companies think they can do anything and while they chase countless “shiny objects,” their core business begins to suffer and they lose the momentum needed to keep the business afloat and slip into a decline.

This month I’m going to touch on the second stage which is the Undisciplined Pursuit of More.

In the 1980s, Ames Department Stores acquired Zayre department stores in order to more than double the size of the company within one year.

It wasn’t an acquisition based on an underlying strategy like tapping into a better distribution system or a most cost effective supply network. It was done to simply grow the company for the sake of growth.

Ames began to use many of Zayre’s strategies which were a clear departure from what made Ames great in the first place. With the help of loss leader promotions (one of Zayre’s strategies), Ames more than doubled its revenues from 1986 to 1989, which was in-line with their initial goals. However, from 1986 to 1992, Ames’ cumulative stock returns fell 98% as the company sunk into bankruptcy and was eventually liquidated in 2002.

Contrary to conventional wisdom, most companies fail, not because of laziness, but rather, because of overreaching. They try to grow too fast and either fail to control costs or take unsubstantiated risks.

Think about the collapse on Wall Street in 2008; Lehman Brothers, AIG and Bear Stearns didn’t fail due to lack of drive or ambition – they went too far and took too many risks in order to grow profits at record setting levels. Where are they now?

In the early 1990s Rubbermaid tried to introduce a new product every day, seven days a week, 365 days per year while entering into a new product category every 12 to 18 months.

Does this sound like an ambitious goal, and one that would be incredibly difficult to manage while trying to produce, market and distribute an already expansive offering? Well, it was and as expected Rubbermaid began to fray at the edges, failing to control costs and fill orders in a timely manner.

In a statement to investors, Rubbermaid’s CEO originally stated, “Our vision is to grow.” That was it; there was no strategy beyond doing lots of new stuff, all at the same time.

Rubbermaid tried to innovate too fast, across too many industries, and in 1995 posted its first loss in decades. The losses forced Rubbermaid to scuttle 6,000 product variations, close 9 production plants and lay off more than 1,100 workers. The company eventually sold out to Newell Corporation in 1998 and never had a chance to recover on its own.

Innovation can drive growth, however, chaotic growth can easily bring down a company if not properly managed with a clear strategic goal.

In the 2000 annual report shareholders, Merck’s CEO stated, “As a company, Merck is totally focused on growth.” Not to be confused with profitability, research driven R&D or productivity, but rather, plain and simple growth.

Unfortunately for Merck, it was about to lose patent protection on five of its drugs that represented close to $5 billion in annual revenue. Generic drugs would eventually undercut Merck’s pricing and deteriorate most of its profitability and Merck wasn’t prepared.

Merck had to continually develop new drugs to fuel the same levels of growth it had experienced in prior years, but that wasn’t a simple task. Harvard case studies calculated the probability of a new molecule creating profitable returns at a mere 1 in 15,000. Merck was successful at beating these odds in the past, so when Vioxx was approved by the FDA, Merck seized the opportunity and marketed the product as their best launch ever.

By 2002, Vioxx sales rose to $2.5 billion and by 2004 over one hundred million prescriptions were written in the US alone. All efforts were poured into Vioxx not because it was successful but because it had to be a blockbuster. Merck’s only goal was growth and Vioxx was providing the majority of the growth needed to sustain the company.

As you might already know, Vioxx was pulled from the shelves in late 2004 amid concerns of heart attacks and strokes with patients using the drug over a prolonged period of time. Merck’s stock dropped nearly $25 billion in one day once the news broke and shareholders lost another $15 billion over the next six weeks.

Merck placed all bets on the success of Vioxx. It would have been lauded as a great company had the drug succeeded but hubris can lead a company to make unwarranted commitments for more and more. As soon as you’ve set the expectations too high, if you fall, you fall hard.

Merck wasn’t always focused on growth. George Merck II stated his goals back in 1950: “We try never to forget that medicine is for the people. It is not for the profits. The profits follow, and if we have remembered that, they have never failed to appear.”

The founders of Merck, Motorola and HP all shared similar goals for their companies. They started their companies and built them with great success based on noble purposes instead of just making money. It was the later generations of CEOs who forgot these lessons and inverted the goals much to the demise of their companies.

Think about Apple – it was initially founded to create innovative, simple and user friendly systems. Apple grew because of Steve Jobs’ original vision and failed when they tried to “make money” under the direction of John Scully, an experienced executive (read: suit) from PepsiCo. Apple reclaimed its position as one of the world’s most successful companies once Jobs returned to refocus the company on design and simplicity rather than on profits. Apple just so happened to make a ton of money in the process. Note: Apple generated $8.8 billion dollars in profits in the last quarter and sits on over $19.7 billion in cash. Not too bad for a hippie, college drop out!

Running a public company is a tremendously difficult task. CEOs face the relentless task of pleasing their shareholders and most end up focusing on short term objectives like quarterly earnings growth. Successful companies focus on building shareholder value rather than maximizing shareflipper price. They do not succumb to growth that undermines long-term value, but that is becoming harder and harder to do nowadays. Wall Street demands continuous growth and punishes companies that don’t perform as expected. Few companies have the strength and energy to ignore these forces in order to focus on measured growth in concert with their underlying strategy.

Only time will tell if the pressures of Wall Street will influence such innovative companies as Facebook and demand relentless growth. Until only a few months ago Facebook was privately held and happily developing products for its users rather than profits for Wall Street. Will its users tolerate endless ads or other disruptions in the pursuit of revenue growth or will they look to other providers to keep them connected with friends and family?

There was a time when MySpace ruled Social Media and Facebook was virtually unknown; remember what happened to them?

~TJM

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For more information on Jim Collins and his other publications, please visit www.JimCollins.com
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If you would like to be featured in our monthly newsletter, please email us at IronTimes@JPMmachinery.com
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2011 Caterpillar 320DL
SPN010XX Series
1,000 Hours (Approx)
Cab/AC, 9’6” Stick, Cold Weather Starting Kit, Manual Thumb, U/C @ 85%
EXW Northeast US
$144,500, subject to prior sale

Contact: Travis Mottet
Phone: (619) 987-0437
Email: TJM@JPMmachinery.com

I am one of the few people that actually like attorneys – not because they are nice people or because they provide a valuable service, but because they are often well connected.

I was reacquainted with a former grad school classmate a couple years ago during a chance networking meeting at Starbucks. Chuck and I attended a few classes together and even teamed up on a project for a marketing class. He was working on his JD/MBA while I was working on my MBA.

We never really attempted to stay in contact once we both graduated but I knew he would stay in San Diego and pursue a career in law while I went on to work in finance.

When I ran into Chuck 11 years later I was actually in the market for a new corporate attorney. Chuck worked for a boutique law firm downtown and I hired him on the spot.

Most of our subsequent conversations surrounded business. We needed to reorganize the corporate ownership structure of several entities and firm up some of our consulting and employment agreements; very boring stuff indeed.

We rarely met in his office and held most of our meetings during lunch at a social club in his building.

During one of our meetings the topic of booze came up. Chuck was more of a vodka man while I was a scotch drinker. He complained about the taste of scotch and said he wasn’t much of a fan. I told him I was in the same boat until I forced myself to have one glass of scotch each night for 40 days so I could acquire the taste. It worked after 2 weeks. Chuck laughed at the idea but said he would try it. Three weeks later Chuck was hooked.

Chuck introduced me to a few of his drinking buddies over the next few months and our lunch meetings quickly evolved into happy hour meetings.

One of Chuck’s buddies was a guy named Kenny who works as an investment banker and knows just about everyone in town. His best connection is with the North American Ambassador for The Macallan. Ian held a Macallan tasting event a couple times a year and, thanks to Kenny, I suddenly found myself with a VIP pass to his next event.

The event was something every scotch drinker should attend at least once in their life. The night started out with a tasting of a 10 year old, then 12, then 15, then 17, then 18, then 21 and finally a 25 year old scotch. Along the way Ian was on stage describing each drink along with historical/hysterical facts on Scotland, The Macallan, the distillation process, and several jokes about the English.

Of all the varietals we sampled, the 17 year old was certainly my favorite and I try and treat myself to a bottle every once in awhile. I have Chuck to thank for the introduction to the 17, but I also curse his name each time I’m in the checkout line since a bottle typically sells for $130 and up. Needless to say, I don’t treat myself very often.

~ TJM

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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If you would like to be featured in our monthly newsletter, please email us at IronTimes@JPMmachinery.com
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2009 Caterpillar D6TXL
LAY013XX Series
2,400 Hours (Approx)
Cab/AC, Semi-U Blade, Multi-Shank Ripper, Sweeps, Rear Screen, U/C @ 65%
EXW Texas
$239,000, subject to prior sale

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

Welcome to the first edition of IRON TIMES!

In this month’s edition, we interview Jeff Halloran, President of WYROC Materials and find out how his company benefits the environment and how he is finding new opportunities in this down economy.

What’s the story behind that name, WYROC?

My father was a cement salesman. One of his clients was Wiley Brothers Transit Mix. One of the brothers passed away, and the other brother wanted to sell. So, my dad bought the company and went out of the cement business and into the ready-mix concrete business. He shortened the name to Wiley Transit Mix, and then found that he’d have more opportunities and a better market if he got out of the ready-mix business and focused just on supplying rock and gravel, and shortened the name to Wiley Rock, and eventually shortened that to WYROCK. He kept the goodwill from Wiley over all the years, plus it was kind of a tradition back then that a lot of the competitors and rock suppliers had some kind of abbreviated word and then “rock.” As the company changed, we differentiated because we took the K off it. So we’re now W-Y-R-O-C.

WYROC is one of the few aggregate companies that works with recycled materials rather than virgin rock. How did you get into recycled rock?

We transitioned into that over the years. I think we were one of the first in Southern California. The last time they did a measure, we were number three in the nation in recycling. To put a little bit of a scope to it, if you look at curbside recycling, we would recycle, back in the day, probably twice the amount that they would do to curbside recycling from North LA to the border of Mexico and on the west, to the Pacific and to the East, the border of California. As a result, we have significantly diverted material from the landfill into a building product.

The past few years have been difficult for the construction industry. What have you learned during the down economy and how have you adapted?

We’ve had to change on several levels. First, geographically, there are areas that we serviced that are just completely dead. So, we have closed those operations. We no longer supply to them because they don’t have a need. What we’re also doing is expanding our offering. Our offering before, and continues to be, a bulk product sold in the big 18-wheel trucks you see on the road. We’re also looking at different ways to package it in polybags or what they call super sacks, which are one-ton sacks they can put in the back of a pickup truck. What that does is it gives the consumer access to a recycled green product that they never had before. So that is a new niche.

Your company maintains eight core values. Can you sum up the values of WYROC?

The overlying thing is, we want to be known as passionately innovative. I think that’s been our tradition. Being the first one to recycle and now moving into a new consumer market. Everything with our values not only supports that, but also insists on a civility between each other and our customers. That is a core thing – be responsive and react appropriately, and solve their problems.

Any Signs of Improvement in the Economy?

My expectations are for not much of an improvement in the bulk market. That’s probably going to remain slow for some time. We’re seeing some matching by the government with different measures and programs. Those probably will not trickle down – at least in any immediate way – to the consumer and the homebuilder. That will put public employees to work, but it isn’t going to affect the private industry probably that much.

Do you have any advice for someone who is running their own business during in this down economy?

The thing that I’ve taken out of going through this change in this economy is I define myself pretty narrowly as kind of a quirky industry. You know – Fred Flintstone. Every time you talk about it, people just shake their head. You start getting a mindset that maybe you’re not special, but you’re unique, and your problems are unique. What I’ve discovered through networking and discussions is there are core problems that exist across all industries. They’re just flavored a little bit different. There are solutions that you can reach to. You just have to tweak it a little bit to make it on point for yourself. So, don’t think you’re so special that you can’t pick up a good business book and get principles out of it that you can apply.

If you could meet someone who’s living or dead; who would it be?

Joshua Chamberlain. He was a Colonel at Gettysburg. He was in charge of holding one of the flanks. He was from Maine. He was basically given the charge, “You hold this line. If you don’t, we will lose.” He had 200 men to start with. He was down to 80 and no ammunition. The Confederates were re-mounting for a charge, and he told his men, “Fix bayonets – charge!” with no ammo. They couldn’t believe the order, but they did it. When the Confederates saw that, they surrendered, and he saved the day.

For more information on Jeff Halloran and WYROC Materials, please visit www.WYROC.com

2002 Caterpillar D8T
KPZ024XX Series
3,800 Hours (Approx)
Cab/AC, Semi-U Blade, Multi-Shank Ripper with 2 Shanks,
New Cat Track Group with 24” ES Pads, Remaining U/C @ 60-70%
FOB Colorado
$435,000, subject to prior sale

Contact: Travis Mottet
Phone: (619) 987-0437
Email: TJM@JPMmachinery.com

Ever since my wife, Erin, and I visited Ireland during our honeymoon in the summer of 2011, I’ve become somewhat addicted to Irish whiskey. Like most addictions, my journey started with a humble beginning.

After a week in Switzerland, Erin and I flew from Zurich to Dublin and landed sometime around midnight. We decided to rent a car at the airport so we could get up early and drive west to Limerick for a few days.

Looking back, that was a horrible idea since 1) we didn’t know where we were going and the GPS was absolutely worthless, 2) it was pitch black out with very few street lights and 3) neither of us have ever driven a car with right hand steering.

Thankfully, I knew how to drive a manual transmission or else we would have never left the airport. After getting completely lost and damn near driving down the wrong way on the toll road, I reluctantly stopped at a local convenience store to ask for directions.

If I didn’t see it with my own eyes, I wouldn’t have believed it either, but there behind the counter was an Indian name Ramesh. I almost burst out laughing at the irony but I held back since I was desperate and he was the only one could help me.

I thanked him for the directions and headed out the door to bravely venture back out onto the roads. After a few more close calls we finally made it to our hotel in one piece. I was a nervous wreck and Erin and I weren’t on speaking terms. I dropped our bags in our room and promptly headed to the bar for a nightcap.

There were only three or four people left in the bar at that hour but I only cared about one man; the bartender. He greeted me with a smile and in a thick accent asked what I wanted to drink. I peered over to the group of men to my right and it appeared each had a pint of Guinness and a shot of something brown.

I told the bartender to give me whatever they were drinking and to make the shot a double. He was back in a few minutes with a pint and glass of booze. I took a big swig of the Guinness and chased it with a sip of my soon to be best friend.

Ah!!! Irish Whiskey, welcome to the family! Normally a scotch drinker, this was a total departure from my norm. Though it tasted a little like scotch, it had a much sweeter aftertaste and more of a syrup-like consistency. And, mixed with a Guinness, it was absolute perfection.

The remainder of our honeymoon revolved around sightseeing, which was breathtaking, and wide variety of local pubs. The people of Ireland are absolutely wonderful and genuinely go out of their way to make sure you enjoy yourself. We both brought back hundreds of photos and memories for life, but I also brought back a new obsession; Irish Whiskey.

~ TJM

There are very few things in life that bother me, but poor communication and lack of follow-up are certainly high on my list.

I spend the majority of my day communicating with buyers, sellers, brokers, dealers, truckers and banks. Sometimes it’s over the phone but more often than not, it’s through email and, increasingly, via text message.

One would assume that with three separate means of contact it would equate to better communication and, more importantly, better follow-up. However, I’m starting to think it’s quite the opposite.

Do you remember when you had to rely on just your phone? And, I don’t mean your cell phone. I mean the phone that was plugged into the wall with the cord that was always 6 inches shorter than what you needed to reach the pencil across the room. When that phone rang, you picked it up; because if you didn’t you would have no idea who called or why. Was it your mom or a customer with an order?

Technology was meant to improve our lives, but has it really? The advent of the answering machine, and later voice mail, may have cured our “missed call anxiety syndrome” but it has also started to reduce our sense of urgency when the phone rang. I can’t tell you the number of times I’ve heard “I’ll just let it go to voice mail” during meetings.

Email made it possible to instantly send messages to the other side of the world, but thanks to spam and overuse, most inboxes are stuffed with hundreds of messages each day. I’m even finding that text messages are being ignored more and more.

While I understand that it’s hard to keep up with the flood of messages and voice mails; we can’t lose sight of what make any organization successful; communication and follow-up.

Simply put; if I call you, call me back; if I email you, email me back; and if I text you, text me back. You’ll be surprised how far it will take you in your business and in life.

~ TJM