Why even successful companies die

It’s one thing to climb the mountain. It’s quite another to live up there.

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Image courtesy Emerald Media

It’s a fact. In the end, most companies die. If you don’t believe me, look at the top 50 companies 25 years ago , and then look at the list from last year. Sure, product life cycles come and go, mergers and acquisitions happen all the time, but there’s no natural or market rationale for business extinction. Rather, companies do themselves in. Blinkered by their own success, with cultures characterized by hubris and self-certainty, they succumb to new competition or changing market dynamics that everybody else but them can see.

Take daily newspapers for example. For 50 years the holding companies that owned them were prized value stocks because they were seen to be stable monopolies that reliably posted healthy profits year over year, with gross margins that often exceeded 25%. But predictable profitability is almost always fatal without leadership committed to constantly testing the assumptions on which it is based. When challenged in the past, very few newspaper companies had successfully migrated from one media platform to the next. Most had dismissed radio. Then they missed television. Then cable. They always simply assumed they were in the newspaper business… forever. Permanently. Even when the internet came along and unpacked their content bundle — and all the financial value it had produced — they just kept on keeping on, with the same product bundle for the same broad, unqualified audience.

For many, even today, it’s still business as usual.

It’s as if they can’t see the market rejection. Or are they choosing not to?

This is a familiar tale. When you analyze business failure you come, in the end, after all the marketplace misreads, missed performance targets and product shortcomings, to the same answer — a breakdown in company culture. Each of the operational problems can be traced back to that. The converse is true, too. When you analyze recurrent business success, you find that it always has its roots in the development and maintenance of a driven, high-performance culture. Jeff Bezos put it best:

I’ve been reminding people that it’s Day 1 for a couple of decades. Day 2 is stasis. Followed by irrelevance. Followed by excruciating, painful decline. Followed by death. And that is why it is always Day 1. How do you fend off Day 2? Such a question can’t have a simple answer. There will be many elements, multiple paths, and many traps…

Jeffrey Bezos, Founder, Chairman and Chief Executive, Amazon.com, 2016 Letter to Shareholders

So, no, newspapers weren’t “killed by the internet.” Google and Facebook didn’t “steal their customers.” Taxpayer-funded subsidies are no panacea, the model is broken. Pieties and wishful thinking will not change the fact that there is no appetite for generic “local” news. None of the lazy, fashionable tropes hold true. Newspapers killed themselves — and that is a function of their impoverished leadership.

Newspaper executives and managers, including editors, proved unable or unwilling to deconstruct and regenerate the myopic culture of their companies and their newsrooms. All the incentives of career climb and compensation were geared to the perpetuation of the currently profitable status quo. Risk? Purchasing a new press was a risk. Might put a dent in margin. Then what would the market say?

Making sure that the culture of a company is ratcheted up to drive peak performance and competitive agility is the biggest challenge any leadership team faces. The very process creates discomfort and unease. The first obstacle they face is that the term “culture” is amorphous and fuzzy. In these days of coronavirus, if I had a roll of toilet paper for every definition of “business culture” I’ve read, I’d have, well, toilet paper. Typically it is seen by employees as a soft, wishy-washy concept, irrelevant to the day-to-day effort of getting the job done. It’s right up there with “team-building.” I spoke out at Google last year and they said “what are you going to talk about?” And I said, “Leadership, productive cultures, the internal sell, that kind of thing…” And they said, “Great, Just don’t give us any team-building crap. We get that bullshit all the time.”

This impression of “culture” isn’t helped by the hundreds of consulting companies called in to run company retreats where speeches are made and silly games played but all to no effect; nothing subsequently changes in day-to-day interpersonal productivity or the management capability of the group. Communicating to skeptical employees how there is a direct, pragmatic connection between culture and actual results is a big part of the challenge.

So, what the hell is business culture, anyway?

Is it dogs at work? Ping pong tables in the breakroom? Lavish on-site lunches? The occasional off-site? Nope. They’re perks. “Signaling” perks, I call them. They’re supposed to signal the company loves its people so they will, you know, be grateful and work harder.

Is it a vision statement, or a list of corporate values, like “the customer is always right” or “our customers are our partners” or “the team is bigger than me?” Nope, they’re aspirations. And they can devolve quickly into empty cliché. You’ve probably experienced that.

Culture is not so obvious. Culture is the set of deep underlying beliefs employees hold about their company. It governs how they behave when no-one’s looking. These beliefs provide a reflexive answer to day-to-day questions like these:

  • Is the quality of this document good enough or should I keep working on it?
  • Now that I’m working from home, do I really have to put in eight hours or more?
  • Is getting the deal done more important than doing the right thing and telling the other side that our numbers are going to be off this quarter?
  • Should I fly up front or back in economy? Should I bring my boyfriend on the business trip with me?
  • Should I tell that vice president to whom I report that everybody thinks his poorly-managed meetings are a giant waste of time?
  • We’re not going to make our number this quarter, and I think I know why, so should I check the head of sales when he tells the CEO we’re on track to hit it?
  • When I negotiate that contract, what’s more important, the points or the strategic partnership?

There’s no one right answer here. The answer depends on who you are, and what kind of company your company is. It depends on your company’s DNA.

Whenever I’m on assignment to overhaul a culture that is stuck, the first thing I do is ask each member of the leadership team privately to describe the culture of their company. The inconsistencies among the responses tells me — and the team — all we need to know.

The key to a productive culture is its clear and uniform articulation.

If employees can expound on it for 15 minutes — and also explain what’s wrong with it — then the company is good shape and able to perform well. No matter how market conditions change, such a company spots the changes early, then can adapt through quick decision-making, recalibrate and push ahead. That’s because culture determines the basic marketplace assumptions a company brings into play automatically, instinctively, as it performs its specific work.

This is where things get dangerous.

I learned two things from watching newspapers fail to adapt and die. First, the future is never a straight-line projection of the past. And second, how you perceive events is often more important than the events themselves. If your view of the market is blinkered by the kind of insularity that characterized the culture inside newspapers, you are guaranteed to misread structural shifts in the markets you serve.

This in turn means that culture and leadership are two sides of the same coin. A CEO is hired because the board believes in her plan. Then, the CEO — and her team — is evaluated on the results of her plan. To execute well, the CEO needs to articulate and promote the strategy internally, recruit her own team, inculcate and reinforce the culture she deems necessary to the mission, and then, through her management team, oversee the execution of her plan. The cultural norms she defines and reinforces will decide who will get promoted, who will get paid what, who will be given added responsibility, and so on, for the CEO cannot do all the work herself. She is a CEO, not a manager.

The roles are fundamentally different: a manager is a subject matter expert while a leader is an expert in managing people. Often, I see subject-matter experts promoted to leadership positions when they lack even basic people skills. I see them say “Go!” when a leader would say “Let’s Go!” The best leaders, as the saying goes, eat last. They put their people first.

No strategy, no operating plan, is permanently relevant. So it falls to the CEO and her team to challenge, continuously, the established assumptions by which a company operates.

The CEO cannot impact industry trends beyond her control. But the CEO can choose whether or not to accept reality, and in so doing, to impact the worldview of all those she leads.

If the most important thing that leaders do is create and manage the culture of the organizations they lead, then the ultimate act of leadership is to stand up to deficient culture, even to destroy it, when it becomes dysfunctional or outdated or static and threatens the long-term health of the business.

That sounds glib. It’s very hard to do. Indeed, I would say that it is the hardest test of leadership.

Here’s what the late great Clayton Christensen had to say about this challenge:

It’s one thing to see into the foggy future with acuity and chart the course corrections that the company must make. But it’s quite another to persuade employees who might not see the changes ahead to line up and work cooperatively to take the company in that new direction. Knowing what tools to wield to elicit the needed cooperation is a critical managerial skill.

Harvard Business Review, July–August 2010

Challenge to institutional assumptions creates anxiety, sometimes even anger, in that institution. In his seminal book on business culture, “Organizational Culture and Leadership,” Edgar Schein of MIT wrote: “…we tend to want to perceive the events around us as congruent with our assumptions, even if that means distorting, denying, projecting, or in other ways falsifying to ourselves what may be going on around us. It is in this psychological process that culture has its ultimate power.”

In other words, we have a tendency to endorse existing beliefs about our position in the marketplace rather than update them or seek new ones. Most leaders lack the necessary equipment to fight motivated reasoning like this, and so cannot hope to regenerate the culture of their company — and through that, their company’s strategic vision, operating performance and competitive vitality. It takes an independent perspective, thinking like an investor, ensuring ownership up and down the line, executing relentlessly and continuously questioning the established belief systems upon which the culture and business are built. Above all, it takes constant communication. No, more than that, it takes persuasion. You can never assume that employees understand why the company has to operate in a different way in the future.

But if a leadership team is not alert to the challenge and lacks the resolve to take it on, they will learn the most fundamental business lesson of all: That it’s one thing to climb the mountain. It’s quite another to live up there.

If you don’t believe me, look at what happened to newspapers.

Kiwi, born under the mountain, adopted by the USA. I tell my stories here at Life of Fiction, mouth off on the media biz at blastofwinter.com, then I go sailing

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