Why Most Strategies Fail: Reason #2

BACKGROUND

I recently saw a blog by the Cascade strategy software company entitled “The 5 Reasons Why 70% of Strategies Fail.” You can read it here.

Since I disagree with their conclusions, I decided to write my own blogs on why strategies fail. I came up with three major reasons. The first reason why most strategies fail is because they are too internally focused at the expense of an external orientation. I covered that topic in the first blog.

The second major reason why strategies fail is because they focus too much on “doing” rather than “being.” That is the topic of this blog.

PROBLEM #2: STRATEGIC FOCUS ON DOING RATHER THAN BEING
In an earlier blog I started by looking at children. Children don’t talk about what they want to “do” when they grow up. No, they talk about what they want to “be” when they grow up. Strategists need to imitate children by asking what their companies want to be in the future rather than what they want to do in the future.

“Being” Keeps You Relevant

Why is a focus on “being” so important? One reason is because the world is full of change. Technology changes, competition changes, social norms change, and so the list goes on in so many areas. The cumulative impact of all of this change causes behaviors and actions which used to be right and normal to appear quaint and obsolete.

Just think of all the change resulting from the internet or the smart phone. They have turned many conventional behaviors on their head. The right behaviors before the internet and the cell phone now look so add and out of place. This is one reason why many millennials cannot tolerate watching old movies and TV shows. The activities in these old shows seem so wrong or odd from the millennials’ modern perspective that they cannot relate to them.

This is why a strategic focus on “doing” can lead to failure. If you do the “right thing” for a long enough period of time, the changing world will eventually make it the “wrong thing.” Your strategy becomes obsolete and you fail.

Just look at Kodak. It didn’t matter that Kodak perfected the way to do analog film. Digital imaging made that type of doing obsolete. A strategy that finds the best way to do something is worthless when customers no longer want you to do it.

That is why focusing on “being” is so much better than a focus on “doing.” “Being” transcends a changing environment. For example, if instead of focusing on “doing” film, Kodak had focused on “being” the best solution for capturing memories, it could still be a thriving company today.

There is always a need to capture memories. The best solution may vary over time, but a solution will always be needed. If you focus on the big picture of what you want to stand for in the marketplace (your choice of what to be), you will remain relevant. By contrast, if you focus on what you want to do, you will become irrelevant.

Example: Wal-Mart

Over the decades, Wal-Mart had had a relentless focus on what it wanted to be. It’s founder, Sam Walton, wanted the company to be the best at offering retail value, starting first in rural communities.  Back in the 1950s the best way to “do” that was with variety stores. So Sam Walton operated Walton’s variety stores.

By the late 1950’s Walton could see that discount stores were becoming a superior solution for being the best at offering retail value, so he abandoned doing variety stores and began to do Wal-Mart discount stores.

In the early 1980’s it looked like warehouse clubs could be an even better way to be the best value provider, so in 1983 the first Sam’s Club was opened. By the late 1980’s Walton could see that supercenters had the potential to be a better value than either discount stores or warehouse clubs, so he stopped doing discount stores and started doing supercenters.

Now, shopping by smart phone appears to consumers as the best value, so Wal-Mart is pushing very hard to become a major player in that space.

Through it all, Wal-Mart has changed many of the ways they have done things. But it has stayed true to what it wanted to be: the best value in retail. By focusing on the being rather than the doing, it has survived around seven decades, whereas most of its competitors (who focused on doing) during that time have disappeared.

“Being” Increases Preference

Nearly every wildly successful brand creates a meaning and purpose which transcends the current product offering. It is this added purpose which causes customers to want to identify with the brand. 

As we talked about in the prior blog, successful strategies create natural preference without resorting to bribes. When your company becomes something grander that customers want to be identified with, they will prefer your brand and pay a premium to do so.

Think of Nike. It does not make shoes. Others own the factories and do the work.  Nike focused instead on being the embodiment of what is aspirational in athleticism. Anyone wanting to identify with that aspiration became attracted to Nike and was loyal to them.  That strategy allowed Nike to successfully expand into many athletic areas beyond shoes while charging premium prices.

BMW’s success is not due so much to “doing” automobiles as to “being” the purveyor of “the ultimate driving machine.” Everything BMW does is focused on this higher level of being. Those desiring to be associated with that type of being flock to BMW and pay a premium for the privilege.

Apple’s success has far more to do with the being it represents than the products it offers. It became the essence of coolness and hipness. Those who also wanted to be seen as cool and hip flocked to Apple.

This is not just a consumer products thing. Back in the days of the big mainframe computers, IBM won the day. It was not just because IBM was good at doing mainframe computers. It was that they created this aura of professionalism and service which transcended the product. It impacted everything all the way down to the professional-looking dress code of the service technicians who came to the customer’s building for repairs.

IBM executed becoming this sense of being professional and reliable so well that there was a saying back in those days that “nobody ever lost their job recommending IBM” for their company. It was the brand IT professionals wanted to be identified with.

Being Needs to Influence Everything

As IBM and other successful brand show, strategy focused on being is a lot more than just a clever slogan or public relations. It has to become a consistent way of life for the entire organization. The corporate culture has to have a similar sense of being. Every facet of the business has to reflect that sense of being, from product design to customer service to how the brand interacts with society.

Steve Jobs made sure everything in every area of what Apple did lived up to what the brand wanted to be. Similarly, there is no tolerance at BMW anywhere for something that is not driven towards being the ultimate driving machine.

These companies show that success comes not from a completing a list of tasks but from an integrated approach aimed at becoming something with a much higher purpose that permeates the essence how a company sees itself. This goes well beyond just a check list of tasks. It is an exercise in identity management.

Dire Consequences When Strategy is more about Doing than Being

When doing dominates strategy, activities are drawn towards performance metrics rather than how a company is perceived. As long as you do what it takes to meet the performance metric, you are rewarded. Unfortunately “what it takes” can destroy who you are.

For example, Wells Fargo got so focused on the task of doing more multiple account activities that it lost sight of its role to be a financial institution preferred by its customers. The result was that Walls Fargo angered its customers by opening many accounts in the customers’ names without their approval. Now they have a big mess to clean up.

Similarly, Volkswagen got so hung up on doing whatever it took to get good diesel mileage ratings that it resorted to lying and cheating. This severely damaged Volkswagen’s ability to be the type of company customers want to identify with. And now they are paying a steep price (in both money and image).  

Warning Signs that Your Strategy is on a Path to Failure

So, what are the warning signs that one is more focused too much on doing rather than being?

First, how seriously do you take your business mission? Do you even know what you want to be? Does your mission explain a higher reason for being that customers will want to identify with or is it just some clever phrase? Does the company try to live out the mission or is it just meaningless rhetoric?

After the collapse of Enron, I talked to many former employees looking for a job. They all said that Enron had a business mission paper explaining the essence of what Enron wanted to be. It was called RICE and it stood for Respect, Integrity, Communications and Excellence. However, they also said that Enron totally ignored this paper.

Instead, Enron became one thing: a place for doing whatever it takes to increase short-term stock price. The incentives all hinged on doing that one thing. So that is what people did. At the extreme, it became illegal stock manipulation.

This leads to the second warning sign: what do you measure? Wells Fargo, Volkwagen and Enron were measuring an activity (adding cross accounts, increasing fuel economy, raising stock price) rather than measuring how their being was perceived in the marketplace. This destroyed their strategy.

That is why I see KPIs as a necessary evil rather than a salvation for strategy. KPI’s tend to focus on doing, because doing is easier to measure and attribute to an individual. Too many and too much focus on these doing-related KPIs lead to the problems at Enron, Wells Fargo and Volkswagen.

Instead, we need more measurement tools that look at how we are managing our image and sense of being that we want customers to identify with.

The third warning sign is how a company reacts to the changing environment. Does it change with the environment so that its being remains relevant (like Wal-Mart) or does it stick with improving the old process and become obsolete (like Kodak)?

A fourth warning sign is a strategic process where corporate culture is not integral. As the saying goes, “culture eats strategy.” Ignore culture at your own peril.

SUMMARY
Depending on which study you look at, somewhere between 60% and 90% of strategies fail. If we don’t address the deep-seated reasons why strategies fail, we will not be able to raise the percentage of strategic successes. I believe that there are three major reasons why strategies fail and my reasons do not always agree with conventional wisdom. The second reason I believe most strategies fail is because the strategic effort is too focused on doing rather than being. Real success occurs when everything about a company reflects the reason why customers would want to identify their sense of self-worth with the identity of your brand. This requires a strategy that is rooted in knowing what your represent (your sense of being) and what type of culture is needed to personify it. Otherwise, employees will do the activities that boost personal gain and destroy the brand and the strategy behind it.

FINAL THOUGHTS
If you don’t look in the mirror, you won’t know how attractive you are. A key role in strategy is to be the mirror, so that the company can see how attractive it is becoming to its customers

Strategic Planning Analogy #546: It Depends on Company Fit

THE STORY
To earn money during college, I worked on a landscaping crew. We had two types of mowers: large riding mowers and small trimmer mowers that you had to push. The riding mowers were great on large, open, flat lawns. The push mowers were great around trees, fences and other such objects, where the large mowers wouldn’t fit or cut delicately enough.

The old timers on the landscaping crew always took the easy job of sitting on the large mowers. The college students got the tougher job of trimming around the trees with the small mowers. At least I got a tan and built up some muscles.

THE ANALOGY
Are the big riding mowers better for cutting grass or are the small push mowers better? Well, it depends. If you have a large flat lawn, the large riding mowers are better. If you are trying to trim grass around trees, the small push mowers are better. Each mower is appropriate for one type of job and inappropriate for the other type of job. The trick is to choose the appropriate tool for the job you have.

The same can be said of strategy. Some strategies are more likely to be successful in the hands of large companies. Other strategies are more likely to succeed in the hands of small companies. If you put a strategy into the hands of the wrong company, it won’t work.

That’s why you cannot evaluate strategies in isolation. Most of the time one cannot say “This strategy is universally good” or “This strategy is universally bad.” The better answer is “It depends on what company is executing the strategy.” The same strategy may be great or terrible, depending on who is trying to execute it.

So, just as choosing the right tool matters when cutting grass, choosing the right company matters when executing strategy.

THE PRINCIPLE
This is the second of two blogs looking at what makes a strategy good or bad. The first blog looked at how timing impacts success. This blog looks at how the type of company impacts success.

The principle here is that there needs to be a fit between strategy and those being called to execute it. If the fit is good, then the likelihood of success goes way up. If the fit is poor, the likelihood of success goes way down. Therefore, one needs to choose strategies which align best with who they are.

This would seem to be an obvious principle, but I see it violated all the time. A typical case is when a company in an industry does something successful. Others in the industry see that success and try to imitate it. These imitators think “That company has found a good strategy. I should have a good strategy, so I will imitate their strategy.”

However, just because the strategy worked for that first company does not mean it will work for all of the other companies equally as well. It just may not be appropriate for who your business is. It would be as if your company was like the little trimmer mower who was trying to imitate the strategy which worked for the large riding mower. You won’t succeed, because your company isn’t built for success in that area.

There are many elements which influence whether your business is a good fit for a particular strategy. These elements include:

• Culture
• Values
• Competencies & Expertise
• Centralized or Decentralize Management
• Tight or Flexible Controls
• Access to Resources (Money, Talent)
• Connections in the Supply Chain
• Level of Patience on Financial Returns

This list can go on and on. However, to illustrate the principle, I will focus on two elements: Clout and Agility.

Agility

An agile company is a lot like that small trimmer mower. The trimmer mower has the flexibility to cut around all types of obstacles.  It can adjust quickly and make sharp turns when necessary. The same is true of an agile company. It can quickly adjust to lots of obstacles in its path.

Agile companies are well suited to strategies in new spaces where there are a lot of unknowns and where flexibility, speed, and unconventional approaches are keys to success. That is why most of the dramatic disruptions in an industry come from small upstart companies rather than the large status quo firms. The small upstart companies are better suited to having success with the disruption—they are more agile and have less to lose from disruption.

IBM understood this when it tried to invent the PC industry. Management knew that the core of IBM at that time was more like the large riding mower. It was great for mowing down the competition when going after large accounts with large processing needs in established industries. But it was the wrong tool to implement a PC invention strategy. They needed something more agile.

Therefore, in order to make the PC strategy succeed, IBM had to first create a business that was properly fit for the task—something more agile. IBM set up a separate business in a separate location with a culture dis-similar to the rest of IBM. Had they not first set up this separate, more agile culture for the strategy, most experts feel the PC strategy would have been a failure.

Other large companies often try to follow IBM’s example and set up separate, more agile divisions for their start-up strategies. But I’ve seen many of them screw it up by forcing the small division to still use the corporate shared services. The idea is that the shared services will make the start-up more efficient. Instead, I’ve seen the opposite. The start-up is strangulated by all the red tape and bureaucracy from the shared services. They end up becoming less efficient, and worse, less agile. It’s like taking a small trimmer mower and putting a huge engine and seat on it. It can no longer act like a small trimmer mower.

Clout

But small, agile companies are not the best for all strategies. Sometimes clout is more important than agility. As an expert in retail, I’ve been approached by others asking me if a particular retail strategy is good. Sometimes, I respond by saying, “That depends. Is Walmart going to implement the strategy or is it a small upstart?” The reason I say that is because some strategies can only work in the hands of someone with tremendous clout. In the consumer space, Walmart has clout that other can only dream about. So it can implement strategies others cannot.

Since Walmart is typically the largest customer of most consumer products companies, Walmart can ask its vendors to do all sorts of things—and the vendors will do it due to the clout Walmart has with them. Smaller firms would not be able to pull this off.

Walmart’s huge size gives them the scale to do things outside the scope of others. Because they handle so many transactions, Walmart has been able to transform portions of the financial industry. Because they have so many employees, they are now experimenting with reinventing how health care is managed. Size and clout can be your best asset when it comes to some types of strategies, where power is more important than agility.

In an earlier blog, I discussed the story of Clean Shower. Robert Black invented a product that helped clean the soap scum off shower walls. At first, the big consumer product companies wanted to buy him out, but Black initially refused and decided to run his small business on his own.

Unfortunately, his invention was easily copied by big consumer products companies. The consumer product companies used their superior clout in distribution and marketing to get advantageous product placement in the stores and brand preference with the consumers. Black did not have enough clout or resources to keep up with them. Eventually, Clean Shower ceased to exist. For Black, the better strategy would have been to sell out early to the ones who had the clout needed to succeed.

At one time I was trying to pitch a strategy to revitalize Sears. But that was when Sears still had reasonable clout in the marketplace. That clout has since dissipated quite a bit. Sears’ clout has so weakened that I doubt my strategy would work anymore. So was my strategy good or bad? It depends.

Options

Therefore, you have two options when trying to successfully execute a strategy. Either you:

a)      Start by only considering strategies which have a strong fit with what your company is already good at executing, OR

b)      Look for ways to modify your company so that it can become a better fit with the strategy (like what IBM did for the PC).

Although the first option is probably the safest, it may limit you to only small, incremental improvements. If you want to make larger leaps, you may need the second option.

SUMMARY
You cannot just look at a strategy in a vacuum to determine if it is good or bad. You have to look at in within a context. One element of that context is who is executing the strategy. If the fit between what the company is good at and what is needed to win is right, the strategy can be very good. If the fit is wrong, that same strategy can be very bad. Although many factors affect fit, two important ones are agility and clout. Sometimes smaller, more agile companies are better suited to a strategy. Other times, large companies with a lot of clout have a better chance of success. To ensure fit, you can either: 1) Only look at strategies which fit who you are today; or 2) Modify your company to improve the fit.

FINAL THOUGHTS
Strategies are only good if they work out in the marketplace. Therefore, before embarking on a new strategy, make sure you know what your company is capable of. Do you have what it takes to make it work out in the marketplace?

Strategic Planning Analogy #479: Playing to Win

THE STORY
Back in the very early days of personal computers (before the IBM PC), there were a lot of small upstart companies that wanted to get into the business.  Most of them said something like the following:

“We may not be big enough or strong enough to become the market leader, but we think we can get about a 15% market share.  And that should be large enough to make a good return on investment.”

The problem with this approach was that:

1)      The leaders would already have about 50% of the market share in personal computers.

2)      There were about a dozen firms who wanted to get about 15% share out of the remaining 50% of share available (that math doesn’t work).

As a result, most of these upstart companies only got about 5% share or less.  This was insufficient for profitability and they quickly went bankrupt.

Later, when IBM entered the market with the first “PC” (and the first software from Microsoft), even most of the market leaders, like Radio Shack and Commodore, had to give up the business.

 

THE ANALOGY
If you look at the strategy of most of the early entrants to personal computing, they were not playing to win.  Instead, they were playing to exist.  The idea was they did not need to aggressively pursue superiority in positioning or features.  Instead, these companies felt that all they needed to do was “show up”, and the rapidly growing market would have enough space to absorb them at about 15% market share.

That approach was a dismal failure.  By not playing to win, they ended up with nothing.  When IBM entered the market, it was aggressively playing to win—and it was the clear winner for quite awhile.

When designing a strategy, are you approaching the market more like those early entrants (just show up and hope to get sufficient share) or like IBM (go big and play to win)?

 

THE PRINCIPLE
The principle here is based on Law #12 of my 22 Laws of Strategy.  This is the Law of Winning, which says, “If you do not play to win, you will lose.”  Playing to win requires:

a)      Designing and Achieving a Winning Position (unique, desirable)

b)      Aggressively Pursuing that Position in the Marketplace

c)      Developing a business model so that you can have superiority in your position and still make money.

This is not what those early personal computer manufacturers did.  They built “me-too” products using similar business models and shipped them out to whomever would buy them.  And by not playing to win, they lost.

IBM played to win.  They developed a superior product.  They installed superior software (MS DOS).  They aggressively advertised the brand (to the point where PC became a generic name for the whole category).  They put the full force of IBM behind it.  And they became a winner.

The Rule of 1.5

If anything, the importance of playing to win is even stronger in today’s economy.  One reason why “playing to exist” no longer works well is due to the rule of 1.5.  Back in the 1980’s it was called the rule of three, which stated that most businesses had 3 strong players:  a leader, a close challenger, and a rebel/innovator.  The prime example used back then was US colas: Leader=Coke; Challenger=Pepsi; Rebel/Innovator=RC.

However, over time, this paradigm has mostly disappeared.  The reason can be found in a 1995 book called the Winner-Take-All Society, by Frank and Cook.  The book showed that in industry after industry, the advantages of leadership were getting stronger and stronger.  Challengers were at an ever greater disadvantage.  Brands were beginning to realize that it made more sense for a challenger to reposition itself as a leader in different market position than to go directly after a leader.

The net result is what I call the rule of 1.5.  Now most markets have a single strong leader with only minor challengers.  Think about US retailing.  Where it used to be Best Buy vs. Circuit City, it is now only Best Buy.  Where it used to be Bed Bath & Beyond and Linens-N-Things, it is now just Bed Bath & Beyond.  And who is the strong challenger to Walmart or Amazon?

Even in colas, Coke has increased its dominance over Pepsi to the point where its greatest challenger is now Diet Coke (which leads in a different position).  And RC cola barely exists anymore (and survives via association with Dr. Pepper, a leader in its own category of beverages).

That is why you need to play to win, because there is no guarantee that there will even be room for a profitable number 2 or 3 or 4.   Take it from me…when I was working at Best Buy and founder Dick Schulze was still running the show, there was no doubt that he was aggressively and passionately playing to win.  And win they did.

Metcalf’s Law

If anything, the digital economy with the internet and social media has accelerated this phenomenon.  It was first described as Metcalf’s law, which states that the value of a network is equal to the square of the number of connections to that network (or U=y²).

The new digital/social/mobile economy is all about building networks.  And the bigger your network, the more powerful you are.  Look at Facebook.  It did not get its high stock valuation due to current profits.  The high value was due to Metcalf’s Law and the millions upon millions upon millions of users in its network.  Linked in and others are also following this principle and building the largest networks of members in their space.

Once you build up a huge network, there are incentives for people to join your network and stay in your network.  It is referred to as “stickiness.” Hence, the networking leaders tend to become even stronger leaders and the challengers become weaker.  Who is the major challenger to Facebook?  Can a new competitor just “show up” and expect to gain a large following in Facebook’s space?

Part of the appeal of Apple is the network of partners and features it puts around its products.  The apps, the app store, the interface connections, the partnership deals and so on make the sum of the network greater than the parts, and makes it harder for any single player to challenge that network.

If you do not play to win in creating the network, you will ultimately lose in this economy.

 

SUMMARY
The disproportionate advantages to being the market leader are huge and getting even stronger.  It is getting to the point where if you are not the leader, you will be hard pressed to even make an adequate profit.  As a result, every business needs a strategy built around leadership—a winning position in desirable space.  In addition, you need to aggressively pursue gaining and maintaining that position.  Others are also out there fighting to win, so if you are not equally fighting to win, they will become the winner instead of you.

Just showing up with a me-too product and hoping that the market is large enough to get you sufficient market share is no longer a viable strategy (if it ever was in the first place).  Those “just showing up” market shares are never as large as you think they should be and rarely lead to a viable business model.  Be aggressive and play to win or don’t play at all.

 

FINAL THOUGHTS
They say that imitation is the sincerest form of flattery.  That may be true, but imitation is not a very good approach to strategy.  Following the leader positions you as a follower, not a leader.  If you do not have a business model and an aggressiveness to get to a place where you can lead (or win), then all you have is a blueprint for losing.  The world already has a Facebook, Amazon and Walmart.  It doesn’t need an imitation of them.  Instead the world needs new positions to be conquered.  Are you scaling the mountain of imitation or a mountain where you can be first to the top and win? 

 

Analogy #159: Choosing Your House

THE STORY
When it comes time to choose a house, my wife and I have a problem. She is allergic to new houses and I am allergic to old houses.

More specifically, my wife is allergic to many of the chemicals used in modern home product manufacturing, like formaldehyde (which is in a lot more products than you would first imagine). I, on the other hand, am allergic to certain molds and dust, which are common in many older homes.

Of course, the current housing crisis is making everyone a little sick to their stomach.

THE ANALOGY
Choosing the place where you live is an important decision. You don’t want to end up in a place where you are sick all of the time.

The same is true of businesses. You don’t want to position your business to be operating in places where performance will be continually sick.

Different people have different tolerances. I can tolerate the problems that come with new home construction. My wife can tolerate the problems that come with older homes.

This is similar to business lifecycles. Business problems are different depending on the age, or stage in the lifecycle. Business startups, for example, are different from mature firms. Rapid growth provides different challenges than businesses in decline.

Some business cultures, or management styles, are better suited to particular stages in the lifestyle than others. A manager, for example, may be very good at starting up new businesses, but miserable at managing through a decline phase. In a sense, that manager is “allergic” to decline-phase businesses, just as I am allergic to musty old houses.

A company is far more likely to be successful if it chooses places to live that avoid their allergies. Therefore, strategies should take these natural allergies into account when decided which businesses to live in.

THE PRINCIPLE
There are four key principles related to finding the right house for your company.

1) Understand Your Allergies
You cannot avoid your allergies if you do not know what they are. Take the time in your planning process to understand your strengths and weaknesses. And when you are discovering your weaknesses, get specific.

For example, I said earlier that my wife is allergic to new houses. More specifically, she is allergic to many of the chemicals used in new construction, like formaldehyde. An all-natural new home, like a log cabin, would be something my wife could tolerate. Similar for me, I said I was allergic to old houses, but specifically I am allergic to certain molds that can form in old houses. If a house was well maintained and the humidity controlled, then an old house wouldn’t bother me.

The more you know about the specifics of your weakness, the more you can plan around it or compensate for it.

2) Avoid Toxic Houses
In general, a company will best succeed if it goes with its strengths. Therefore, your corporate portfolio should be skewed towards businesses in the portion of the life cycle you are best at. For those portions of the life cycle you are not suited for (your allergies), avoid them in your portfolio.

For example, let’s say your strength is in knowing how to squeeze more profits out of a mature business and your allergy is in start-ups. Now there may be a great opportunity in some new start-up industry. You may see a lot of your friends investing in this new business. You may say to yourself, “This is a great new opportunity. I should invest in it.”

However, if this is not an area of your strength, such a move could be a disaster for you, even if it is a success for others. Because your natural inclination is to squeeze profits out of a company, you might destroy your start-up my asking it to be too profitable, too early, and starve it of the necessary start-up capital. And even if you can nurse it along, there will be others in this start up industry who are much better at it. In the long run, only a small percentage of the people who enter a start-up industry are truly successful. I would bet that the ultimate winners would tend to be those who have natural strengths at doing start-ups.

Just because a new house may be wonderful for me, it doesn’t mean that it is wonderful for others. It might be toxic for my wife. You have to discover which houses are toxi for you, and then avoid them.

3) Minimize the Threat
In a perfect world, you may be able to avoid all toxic houses. In reality, you may end up with a few, anyway. What to do? In the case of house allergies, I can take an anti-histamine. What is the equivalent in business? It is delegation and separation.

When IBM wanted to get into the pc business, it knew that its core business was allergic to this type of a start-up and that the normal culture would kill it. Therefore, it used delegation and separation. The team given the task of developing the PC was placed in a remote location where the rest of the business would not interfere. Power was delegated to this team so that they could do the start-up the right way, rather than the IBM way. If this had not been done, the PC would never have come out of IBM.

Different phases in the lifecycle have different needs and different challenges. If you try to treat them all identically, you will not be optimizing the performance at each phase. Therefore, if you portfolio has a mix of businesses in different stages, separate them and manage them differently. Back in July of 2007, I did a series of blogs on these differences (see “Same Title, Different Job,” “Management By Yelling,” “Management By Dreaming,” and “Management by Growing”). It would be wise to understand these differences when dealing with the different phases of the lifecycle.

4) Be Prepared to Move
In my case, I may be able to tolerate a new house, but as the house gets older, I may not be able to tolerate that house as much any more. It’s the same house. What has changed is that the house aged. With the aging came a growth of mold which I am allergic to. At some point, it may make sense for me to sell the house and move to a newer house again.

The same thing can happen in business. You may be great at running a small start-up. However, your success could end up creating a large, mature business which you are not well suited to running. Your business moved from your comfort zone into a place where you are allergic. What to do?

One thing you can do is replace management with a team better suited to the new environment. I have great respect for what Dave Thomas did at Wendy’s. When his company evolved to a certain point, he realized that it was entering a phase to which he was allergic. Therefore, he voluntarily stepped down from leadership and handed the company over to management better suited to the new environment.

The other thing you can do is sell the business. There are many people in the high tech dotcom space who are good at starting businesses, but not running them once they become big and bureaucratic. Therefore, they tend to sell the businesses and then go and try their hand at another start-up.

GE is strong with late growth/early mature businesses. When businesses look like they are going into late maturity/decline, they sell them. When they are looking to replace these businesses, they typically don’t start from scratch (where they are allergic), but instead buy established businesses entering the phase they are best at.

It is not a mark of defeat to admit that a business has moved into a phase where you are allergic. It shows that you are smart enough to know when change is the right thing to do.

The worst thing you can do is ignore the inevitable. Business will move through the lifecycle, whether you want them to or not. In today’s environment, the movement through those phases seems to be accelerating. To not include this in your plan is a travesty, because it robs you of the opportunity to properly prepare for all of the changes which come with moving to a new phase in the life cycle.

According to a survey which the Sage company did in Ireland, 53% of the businesses did not have a plan for moving their business to the next stage in the life cycle. Just as it takes time to move to a new house, it takes time to change management or get your business prepared to be sold. This should be a part of your overall plan if your company is moving into toxic territory.

SUMMARY
Business units progress through various stages of a lifecycle, from start-up to growth to maturity to decline. Each stage has different challenges. Your company may be much better at some stages than others. This should be accounted for in your planning process, so that you can take advantage of your strengths and avoid your weaknesses.

FINAL THOUGHTS
As people age, we try to fool ourselves and others through plastic surgery, makeup, hair pieces, hair dyes, etc. We can try to do the same thing with businesses and try to put on a show that we are still a growth company, even when we are no longer in the growth phase. The tricks might fool a few, but eventually living in denial of the truth will hurt you.