Theory of Business Success and Failure

I have this theory of business success and failure based on empirical evidence. It is that many/most of our great companies have achieved success because of leadership of the founder and early owner/manager. When this “titan of the company” passes away, retires, or moves on, this business often begins a downward slide.

This slide is often in slow motion because the company has momentum that carries it for a while; because of market share; because of sheer size; because of wealth; because of adherence to business model set up by the “titan”; and because of the culture he/she created.

There are exceptions to this theory where a family member(s) keeps it growing or a hand picked exceptional manager(s) take control. Occasionally, you even have a great corporation use its strong position to go beyond what was initially envisioned. But, this is rare.

The more typical examples are the ones who disappear or remain as a mere shadow of their former selves. Some examples are steel industry/ Carnegie Steel; office machines and early computers/ IBM; department stores/ Macy’s, Hudson, Marshall Fields; meat packing companies/ Swift, Armour; airlines/ TWA; airplanes/ Lear; cameras/Poloroid; investment companies/ Bear Stearns, Lehman Brothers; etc. We have some in transition now and it will be interesting to watch them: auto companies/ Big 3; computers/ Microsoft; retail/ Wal Mart; fast foods/ McDonald’s; airplanes/ Boeing; etc.

Some of the reasons for initial success of these “titans” are:
* They have a vision for the company that goes way beyond most people’s vision and a passion to pursue it.
* They love a challenge, sheer joy and satisfaction of creating something, often out of nothing.
* The interest of the customer is paramount in their scheme whether it be a product or service they are selling.
* When they are at the top of their game they have the ability to change to meet changing markets.
* They have the willingness to rise to meet competitive challenges and will get pretty aggressive about it.
* They have the courage to take calculated risks and be resilient when those around them get “cold feet.”
* They will encourage acceptance of technological change in their product or service and in the operation of their business – they usually want to be first with these things they feel make sense, not just because they are clever.
* They know that failure of many of their decisions is a given, but they cut their losses quickly, take responsibility for them, and move on with the next plan.
*They usually put a premium on training to improve their employee's skills and knowledge. They want their people to have a "leg up" on their competitors in order to provide better quality and service for their customers.
* They create an environment where their employees know they are appreciated and play a key roll in the success of the company. And, they often rely on a few dedicated, smart, key managers and a cadre of involved, loyal employees.
* They are usually tough task masters who will “get their hands dirty,” work hard, and expect others to do likewise.
* Some of these “titans” were scoundrels, but most possessed great integrity and a compelling interest in the well being of mankind, their country, and their local community. In fact, they often use their wealth to support philanthropic endeavors.

What changes when they step away and their companies get in trouble and/or slide away? Too often, managers take over who do not possess many of the traits cited above. They are often “bean counters” who are mainly concerned with the short term bottom line, personal power and prestige, and personal financial wealth. It is interesting that the “titans” had the wealth, power, and prestige not because that was their goal, but more often almost incidentally as a reward for a job well done.

How do we facilitate this transition of leadership so that many of our successful companies remain viable? The problem with many companies is that shareholders and boards of directors who have the ultimate responsibility in choosing new leadership are primarily interested in their dividend check and maintaining a conservative holding pattern so they choose “bean counters.” Instead, they need to select people with some of the character traits mentioned above along with their degrees and pedigrees. In fact, they need to find leaders who are going to take them for a “ride;” where, if necessary, their company will re-invent itself to meet the challenges of the future. Their buying customer will come first and their employees will come second. The end result of this ride will result in shareholders reaping long term benefits from their investment. Maybe if we had leaders like these and/or find leaders like this we wouldn’t be going through this economic melt down.