Disrupt your own success
You might think that the collapse into administration of large companies such as the UK arm of Readers Digest Woolworths, and Borders are not relevant to your business if you avoid a bad debt or loss of revenue. But corporate failure can teach more about management than success.
These businesses failed to change their business model and were eventually rendered anachronistic. Yes they had high levels of brand awareness but the beliefs consumer’s associated with them proved inadequate.
How many extinct brands and businesses do you remember with affection but without a sense of being disadvantaged by their absence? The world can live without these companies and brands and, probably, without your business.
Generally businesses like these, when they reach the end of their lifespan do not die of market irrelevance but collapse as a consequence of their inability to cope with other matters such as their debt burden, competitive innovation or, as in the case of Readers Digest, not being able to fund their pension liabilities.
A recession tends to expose these weaknesses making remedial action ineffective as the ‘cure’ requires resources in time and finance that have been consumed in the process of survival.
Weak businesses are rarely destroyed by the first ‘disease’ they encounter but their fragility renders them fatally vulnerable to secondary infection. You may survive the loss of sales, higher finance charges, bad debts but cannot cope with the uninsured loss from a terrorist incident.
But there is no inevitability or bad luck at work here only managerial failure. Running a company is about risk identification and management and the pursuit of financial return requires the acceptance of some risk of failure. Managers do not often choose these risks explicitly and therefore take no steps to manage them.
Recognising the vulnerability of a successful business model is one of the hardest managerial tasks. Having found success the natural tendency is to glorify your wellbeing, to preserve and exploit it. Such hubris is dangerous in itself but the means to preserve this profitable position lie beyond your control. Your continued viability is always dependent on the actions of others. Your success attracts the attention of others who look for disruptive ways in which to shift the value proposition in their favour and at your cost just as you once did.
Good management is often about being counter intuitive which means recognising that how you manage in your period of greatest success can sow the seeds of your subsequent failure. Hubris and complacency are at the root of most corporate failures. Both are compelling states of mind and both are avoidable.
The correct response, indeed the only viable response, is to avoid the tendency to sacrifice innovation in favour of exploitation unless you are prepared to be ruthless and exit or close the business when you have acquired a predetermined reward.
You must plan to disrupt your own business model with new ideas that are beyond your customers imagination. If you do not, others will.