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Lessons to be learned from businesses that fail

Inside Business

Posted: March 26, 2008 1:20 a.m.
Updated: May 27, 2008 5:02 a.m.
It seems that nearly every day the media is touting that some brand name business or an industry is on the verge of collapse. The reality is that every day businesses fail and industries consolidate, meaning companies are purchased by competitors or go by the wayside.

Those businesses that cannot adapt or change will ultimately fail.

Some of those businesses we are sorry to see go, others we wonder what took so long and still others we know should never have been started in the first place. Lessons are learned when a business closes the doors; hopefully those that succeed learn from those that fail.

Here are some lessons learned by observing organizations that failed to adapt to a changing marketplace.

First, speed matters. Companies that can execute quickly will do better than those that have so much bureaucracy that changing course or speed takes too much time and too many approvals. Gen. George S. Patton is credited with saying that "A good plan, violently executed now, is better than a perfect plan next week." That thought is not lost on those that move quickly to adapt to changing conditions.

Second, planning is critical. Too many companies fail to have the most basic of plans, simply because leadership doesn't want to commit the time and resources to having to develop one. The companies that develop a plan almost always survive and prosper; those that don't drift and usually end up dying.

Third, having the wrong people in the organization can lead to disaster. According to international press reports, Jerome Kerviel, accused of costing French bank Societe Generale about $7 billion in losses, had been doing risky trades for almost four years before his activities were discovered.

That of course, leads to the fourth lesson which is not having sufficient or significant financial controls (!) but also screams of another critical lesson (number five) that there was a lack of daily and on-going supervision. Kerviel told investigators: "I can't believe that my superiors were not awareŠ" In organizations that fail, there might be a question about who supervises those that supervise; in successful organizations the question doesn't need to be asked because it has already been answered.

As organizations grow and expand, layers of management creep in, so leadership must learn to turn over control and grow trust at the same time. However, systems have to be created, installed and monitored.

Many firms lack these internal policies, procedure and systems so they are developed only when the need arises, usually as a result of a crisis. The sixth lesson is that the needed systems, developed in advance of when they are needed, fail to materialize.

The seventh lesson is that leadership, at whatever level, did not have the skills to do all that running a business requires and did not intend to acquire skills that were lacking. Without a commitment to personal growth, how could the business hope to adapt when leadership was content with the status quo? James Allen wrote that "Men are anxious to improve their circumstances but are unwilling to improve themselves. They therefore remain bound." In successful organizations, leaders understand two things. The first is that what they already know will change; the second is that there is a lot they don't know, and they need to learn it.

Eighth, leadership did not see, or refused to face, the brutal facts of the current reality. It takes courage, perhaps more courage than some leaders have, to be able to see what the real world looks like.

As an unknown author said, "Reality bites ... and doesn't let go." No one likes to be bitten, but if those in a leadership position aren't willing to do so, how can anyone else be expected to?

The ninth lesson is that the business does not have a sustainable competitive advantage. The internal answer to a question as to why any prospect should choose to do business with the organization and not the competition is weak or nonexistent. Those serious about creating and building an organization continually ask and rethink the answer to the question "Why should you do business with me?" In organizations that fail, the question is met with a shrug, and the issue is never addressed or passed to someone else to address.

The last lesson is that the company failed to go their own way; to avoid the herd or pack mentality. Far too many organizations are like lemmings, following those in front of them, heading right over the cliff (subprime mortgage anyone?). With a strong set of core values, used for decision making at every level, every company can set itself apart and set a course for long term success.

Keats wrote: "Failure is, in a sense, the highway to success, inasmuch as every discovery of what is false leads us to seek earnestly after what is true, and every fresh experience points out some form of error which we shall afterwards carefully avoid."

Kenneth W. Keller is President of Renaissance Executive Forums, bringing top executives (CEOs, business owners and presidents) together in facilitated peer advisory boards. His column represents his own views and not necessarily those of The Signal.


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