AIG. Chrysler. General Motors. Bear Stearns. These are but a few of the more notable casualties of the recession. That these giants could be so vulnerable has many small business owners, self-employed individuals, and entrepreneurs wondering,
In addition to these worries is the understanding that bailouts don’t generally apply to those who are small enough to fail.
While the economy certainly plays a part in the failures of many companies, companies fail in good economic times as well. In his book, How the Mighty Fall, Jim Collins explores why the giants of industries fail and identifies the five stages of decline:
- Hubris born of success
- Undisciplined pursuit of more
- Denial of risk and peril
- Grasping for salvation
- Capitulation to irrelevance or death
Though Collins examines these stages from an industry giant perspective, these five stages of decline apply to businesses on a smaller scale.
When you’re at the top it’s easy to be in denial that your business is in danger. Collins’ stages are cumulative, building upon one another until the final stage, capitulation to irrelevance or death, is reached.
As a small business owner, you can’t afford not to understand these five stages of decline.
Hubris Born of Success
Any successful business or individual can become insulated by their success. You worked hard to get to the top, right? You deserve to be at the top! However, do you understand why you are successful?
Undisciplined Pursuit of More
Collins explains that companies that are in stage two, the undisciplined pursuit of more, have strayed from the disciplined creativity that ultimately led to their original successes. Overreaching, leaping into areas where you are not passionate, neglecting core activities while pursuing growth and expansion, and investing in areas where you cannot excel or provide better service than your competitors are all considered undisciplined pursuits.
Denial of Risk and Peril
Large companies often see internal warning signs but don’t take heed because external results may be good enough to suggest that the dangers aren’t as bad as suggested or are part of a cycle that will ultimately right itself.
What about your business? Do you do the same?
Blaming external forces rather than taking responsibility is denying risk and peril. Instead of blaming the “slow season” for lackluster sales and waiting for things to pick up again, take action. Don’t discount negative information or amplify positive data are you will be in denial.
Grasping for Salvation
Grasping for salvation takes many forms ranging from adopting bold, untested strategies to mergers and acquisitions. When a company is rapidly declining due to weaknesses found in the previous stages of decline (such as a sense of entitlement to success, undisciplined pursuit of more, and denial of risk), it becomes desperate for a quick save.
Capitulation to Irrelevance or Death
Hopefully, you will never get to the final stage: capitulation to irrelevance or death. When companies reach this stage, their leaders have abandoned hope and the companies either become insignificant, get sold, or go out of business.
When large businesses get to this point, their failures often make the headlines small businesses do not.
Take a lesson from the giants who fell before you and do not allow yourself to get to this point. Avoid the five stages of denial by recognizing what made you successful in the first place, never losing sight of your core values and pursuits, recognizing risks and accepting accountability, and remaining focused on the basic factors that made you successful in the first place.
Just as you’d have your books audited to catch any fraud early – yes, your valued and trusted treasurer may be a crook, it happens all the time – you should get an outsider to come in and help you do an audit of your business.