The last post I wrote “It’s the End of the World as We Know It” received some good feedback and comments from readers. While it was not intended to be a “doom and gloom” report, it did lead me to start thinking about why countries and businesses fail.
Most small businesses and/or sole proprietorships (“solo-preneurs”) go out of business due to lack of marketing. If the word doesn’t get out about the business, the result will be no customers and ultimately no sales. That’s true for a small business, but what about in the case of large companies?
According to Jim Collins, the decline of any organization, including businesses and countries (aka societies), starts by putting up a false front so that they look good on the outside, but in reality they are actually sick on the inside. In other words, a superficial veneer on the outside hides something terribly wrong on the inside. Many companies do this – Enron did, and remember Perry Ellis in the 1980s? At the time, Perry Ellis, the person, was in poor health, but Perry Ellis the company put up a strong façade so that sales would remain strong.
The Day After the Dollar Crashes alludes to this concept for the United States; basically stating that the current crop of political leaders were handed the wealthiest nation on earth, after The Greatest Generation fought hard to win WWII. In a relatively short amount of time, the U.S. has gone from the wealthiest nation on earth to one overloaded with debt. One of the things that can lead to organizational decline is irresponsible spending and too much debt. Another is failure to innovate and find new ways of doing things.
Collins’ 5 Stages of Organizational Decline are:
1) Hubris – arrogance, stubbornness, the firm belief that you are right and refusing to see another person’s point of view.
2) Undisciplined and irresponsible pursuit of more – overreaching, going too far, too much growth in a short amount of time, too much expansion, etc.
3) Denial of risk. Everything’s okay. Nothing’s wrong. Everything will be fine.
4) Grasping for salvation.
5) Capitulation.
During stages 1-3 an organization will still look healthy on the outside. If organizations become complacent, refuse to change, and get stuck in a rut, then they get in trouble and will eventually fail. This can happen to countries as well as solo-preneurs (via burnout). I know this to be true, and in fact, lack of innovation is listed as Mistake #10 in my Free Report “The 10 Mistakes that New Entrepreneurs Make” (sign up on the top right hand side of this page to get your free copy).
There are certain signs that identify companies (and countries) that are on the decline. One is that certain unpleasant facts are denied by the organization. Things like real revenues, unemployment numbers, GDP, debt-to-earnings ratio, etc. (think Enron). A second sign is that emotion and opinions begin to outweigh logic and reason within the organization. Leaders do not come together when decisions are made, and individuals seek as much credit as possible for themselves, instead of working together to get a particular job or task accomplished. Does any of this sound familiar?
By Stage 4, any solutions are grim. At this point, companies are grasping at straws – at any possible “fix” to keep them afloat. According to Collins, at this point many companies resort to some kind of a mega merger. Remember Compaq’s merger with HP in 2001? At the time, Compaq, a once very successful company, was floundering. Did the merger really “fix” anything, other than to transfer debt to HP? What about the transfer of debt from private companies (GM) and mortgage debt from Fannie and Freddie to the U.S. government? (And then some people support a NAU merger on top of all this – what a disaster that would be!).
By stage 5, it’s over. Failure is inevitable this point. You have run out of capital and credibility.
So what do you think?
Is that where we are now?
