Why Do the Mighty Fall?

Are you managing or working for a company that has been established in the 1970s? Congratulations – you have 92 % percent chance of surviving the next five years! How about you whose company has been founded between years 2000 – 2009? Well.. you still got 63 % chance of making it.

Unsplash / Austin Neill

The above figures were taken from a recent Dartmouth University research and telling the same story we heard many times last year; 80 % of companies that were around in the 80s, are now gone. Another 17 % of companies around today will disappear within the next five years. By 2027 a stunning 75 % of S&P500 companies are presumed gone. Scary thought, isn’t it?

Couple of weeks ago I read Jim Collins’ book “How the Mighty Fall: And Why Some Companies Never Give In”. The book itself is already few years old but I found its message now when we are living through digital revolution more appealing than ever. Today, it seems that most of the data and research information available is ushering businesses to change or face extinction through digital disruption. But the book gave me some food for thought. If businesses are challenged by digitalization from one end, what are the dangers of digital transformation on the other? What are the reasons that drive successful companies out of business and are there any ways to avoid this?

Collins describes the patterns how successful companies end up in crisis. From my point of view, there is no reason to separate between incumbents and new successful start-ups, the same perils await both traditional and digital businesses if they are not constantly on the lookout. Digital just adds another dimension into the picture.

There is a saying that “Nothing can save a successful business” for a reason. Companies that start believing their own excellence rises from them being somehow better than others, tend to become arrogant and end up taking success for granted. Holding top position, whether imaginary or real, usually results companies going into growing frenzy, pursuing double-triple digits, eventually through acquisitions when organic growth becomes impossible to satisfy their expansion desires.

Fast growth has two problems, either you will end up growing into business areas which you are not immensely familiar with or you will grow too fast so that your operational processes will not be able to keep up. Both over-doing it and reaching too far out of your comfort zone are adding risk for burning the business.

During growing frenzy it is also really easy to dismiss early warning signs, explain bad figures as passing phenomena, focus only on the positives and ignore facts telling otherwise. Companies in full throttle may just accelerate their way into a downward spiral. Another telltale sign is that once management admits that something needs to be done, they usually only come up with miracle fixes, hire new management, do yet another re-org of the company, anything to keep everyone too busy from admitting the truth. In the final phase the company will be forced to give in and get out of business or become a small-timer.

Now how does all this relate to digital transformation? The way I interpret this in this fast paced digital environment is that companies, whilst standing to gain substantial competitive edge through digital means, should not steer their focus away from their core business. It is crucial that even if it is necessary to embark on digital journey to keep up with competition, the foundation of your business needs to be driven with same amount of vigor as it always has.

Neglecting the foundation of your business is the fastest way to run you out of business. By the time you come out of your digital endeavors and realize that your once successful core business has started to shake, it might be too late to correct the course.

“Both over-doing it and reaching too far out of your comfort zone are adding risk for burning the business.”

The way I see this is that amongst all this hype of digitalization, new technology and disruption talk, there is a risk of getting caught in the hype. If you are running a successful, albeit more traditional business, launching new, exciting digital business (we must since everyone else is doing it!) might sound the only thing to do. The likelihood increases if at the same time there looms a disruptive threat in the horizon.

Retail business is a great example of this. Not so long ago everyone was in unison that all shopping will go online and by doing so killing brick and mortar business in its wake. Today, we know better. While it is a must for any retailer to have online presence, the best profits are still done at physical stores where you are more likely to be able to create a great in-store shopping experience.

“So don’t get caught in the hype”

Finding the right balance between traditional and digital, going fast and slow at the same time takes careful deliberation. The key might very well be to use digital tools and technology to relentlessly improve your core business, not have it become completely over-run by new digital solutions. Then again, some businesses are better off sold or ramped down, some needs taking to the next level by digital means and maybe, if you know what you are doing, you are able to generate entirely new business lines thanks to the new technology.

Nonetheless, the recipe for success will be a combination of different elements. This just highlights the fact that every digital transformation journey is a unique one, and cannot be copied or mimicked from others – that is, if you’re looking to make it through the next five years.

“Whether you prevail or fail depends more on what you do to yourself than on what the world does to you.” – Jim Collins