Collapse: Why Societies and Startups don't survive

Blogger's Note: An intriguing article on why societies, companies in particular, do not succeed.


Why Societies -- and Startups -- Collapse
By Keith McFarland
Businessweek Magazine, 20 APRIL 2005

The fundamental reasons for failure in both are similar. And these mistakes tend to be common among entrepreneurs

In his terrific new book, Collapse, science writer Jared Diamond examines some of the most famous failed civilizations of prehistory and history, from Easter Islanders and the Anasazi of New Mexico to the Viking settlers of Greenland. I bought the book because I found the subtitle intriguing: How Societies Choose to Fail. I had never considered the possibility that they had a choice in the matter, but it turns out they do.

Diamond concludes that societies collapse when they fall on hard times and make one or more of four fundamental mistakes:
1) They fail to anticipate problems.
2) They don't respond promptly when problems arrive.
3) They exhibit something he calls "bad" rational behavior.
4) They adopt "disastrous values."

I don't know about you, but I think this is a pretty good list for business failure, too. Businesspeople, especially entrepreneurs, are optimistic folks. We don't like to spend a lot of time dwelling on bad things that might happen. It brings people down. Besides, most of the problems we see coming often veer off the road before they get to us anyway, right?

SINGED SMIRK. Tell that to my friend who recently used a bank credit line to finance a major acquisition, only to have his core business take a nosedive and put him in default. Or to another friend who decided to open a new plant at the same time he was launching an important new product. Both were major money losers, as his team was spread too thin to do either project justice.

Fact is, most entrepreneurial leaders aren't all that great at anticipating problems. We're great at eventually figuring a way out of most messes we create, but don't ask us to forsee them. It brings us down.

And if entrepreneurs are bad at predicting mishaps, we're not always so quick in responding to them, either. Too often we wait until a problem becomes a full-blown crisis, then we don our asbestos coats and rush into the flames with a fire hose and a set of rosary beads. Most successful entrepreneurs are good enough firefighters that most of the time they emerge from the flames with nothing more than a singed smirk on their face -- until that one time they don't.

BADLY RATIONAL. For most of us, it takes one good near-death experience to get religion and start anticipating complications so as to address them before a meltdown. For me, that time came when we had to lay off 68% of our staff after allowing a business-model problem to become a full-blown capital crisis triggered by the loss of a big customer. As I looked at the termination paperwork of the last person I let go (the 198th person, to be exact), I realized that in business we have no choice but to adjust our thinking.

But we can choose how we change our thinking -- either incrementally as we go along, or more occasionally in periodic and painful collisions with a new reality. Better to anticipate problems, respond immediately, and take your pain in small doses.

Another mistake that can cause a collapse is what Diamond calls "bad" rational behavior. Look at the way many outfits cut costs. I know a public company that recently announced it was reducing travel budgets across the board by 60%. In this and most organizations, salespeople spend most of the travel dollars. And when you tell a salesperson, "We don't want you to do what we're paying you to do" (get on the road and make sales presentations), it's pretty demoralizing.

Instead of biting the bullet and, say, firing the poorest performing 10% of its salespeople or slashing an existing a line of business, the company decided to demoralize the entire sales force, at a time when its market share is plummeting. That's bad rational behavior.

CEO-CENTRIC. Think your outfit is immune from bad rational decisions? Forward this column to a few people in your organization and ask them to list some examples. You won't be short of reading material.

Finally, societies (and companies) collapse because of what Diamond calls "disastrous values." More often than not, these values may allow a company to succeed at one phase of development, but then they may undermine it at a later stage. For example, most successful early-stage entrepreneurial businesses are pretty CEO-centric. In fact, research suggests that nothing is more important in predicting the success of an early-stage venture than the quality of its leader.

But as it grows and becomes more complex, the outfit often needs to evolve and allow key employees to make autonomous decisions and contribute meaningfully to its strategy. The fact that only about 1.5% of all U.S. firms ever reach $25 million in sales suggests that too many of them hold on too long to this -- or other -- disastrous values.
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McFarland, a two-time technology CEO, is the founder and principal of McFarland Strategy Partners in Sandy, Utah. His clients include House of Blues, Vans, and other entrepreneurial companies
Edited by Rod Kurtz
http://www.businessweek.com/print/smallbiz/content/apr2005/sb20050420_3427_sb037.htm?chan=sb&