How the Mighty FALL

By Jim Collins

 STAGE 1: HUBRIS BORN OF SUCCESS – , ڱ

Great enterprises can become insulated by success; accumulated momentum can carry an enterprise forward for a while, even if its leaders make poor decisions or lose discipline. Stage 1 kicks in when people become arrogant, regarding success virtually as an entitlement, and they lose sight of the true underlying factors that created success in the first place. When the rhetoric of success (Were successful because we do these specific things) replaces penetrating understanding and insight (Were successful because we understand why we do these specific things and under what conditions they would no longer work), decline will very likely follow. Luck and chance play a role in many successful outcomes, and those who fail to acknowledge the role luck may have played in their success—and thereby overestimate their own merit and capabilities—have succumbed to hubris.

STAGE 2: UNDISCIPLINED PURSUIT OF MORE –

Hubris from Stage 1 (Were so great, we can do anything!) leads right to Stage 2, the Undisciplined Pursuit of More—more scale, more growth, more acclaim, more of whatever those in power see as success. Companies in Stage 2 stray from the disciplined creativity that led them to greatness in the first place, making undisciplined leaps into areas where they cannot be great or growing faster than they can achieve with excellence—or both. When an organization grows beyond its ability to fill its key seats with the right people, it has set itself up for a fall. Although complacency and resistance to change remain dangers to any successful enterprise, overreaching better captures how the mighty fall.

STAGE 3: DENIAL OF RISK AND PERIL – ν

As companies move into Stage 3, internal warning signs begin to mount, yet external results remain strong enough to explain away disturbing data or to suggest that the difficulties are temporary or cyclic or not that bad, and nothing is fundamentally wrong. In Stage 3, leaders discount negative data, amplify positive data, and put a positive spin on ambiguous data. Those in power start to blame external factors for setbacks rather than accept responsibility. The vigorous, fact-based dialogue that characterizes high-performance teams dwindles or disappears altogether. When those in power begin to imperil the enterprise by taking outsize risks and acting in a way that denies the consequences of those risks, they are headed straight for Stage 4.

STAGE 4: GRASPING FOR SALVATION – Ǫ

The cumulative peril and/or risks gone bad of Stage 3 assert themselves, throwing the enterprise into a sharp decline visible to all. The critical question is: How does its leadership respond? By lurching for a quick salvation or by getting back to the disciplines that brought about greatness in the first place? Those who grasp for salvation have fallen into Stage 4. Common saviors include a charismatic visionary leader, a bold but untested strategy, a radical transformation, a dramatic cultural revolution, a hoped-for blockbuster product, a game-changing acquisition, or any number of other silver-bullet solutions. Initial results from taking dramatic action may appear positive, but they do not last.

STAGE 5: CAPITULATION TO IRRELEVANCE OR DEATH – ׺

The longer a company remains in Stage 4, repeatedly grasping for silver bullets, the more likely it will spiral downward. In Stage 5, accumulated setbacks and expensive false starts erode financial strength and individual spirit to such an extent that leaders abandon all hope of building a great future. In some cases the companys leader just sells out; in other cases the institution atrophies into utter insignificance; and in the most extreme cases the enterprise simply dies outright.

One of the key assertion by Mr. Collin is that Every institution is vulnerable, no matter how great. There is no law of nature that the most powerful will inevitably remain at the top. Anyone can fall, and most eventually do. 

The Chinese philosopher Lau Tsz has this famous quote in the Tao Te Ching:

He who stands on tiptoe is not steady.
He who strides cannot maintain the pace.
He who makes a show is not enlightened.
He who is self-righteous is not respected.
He who boasts achieves nothing.
He who brags will not endure.

Bill Gates echoed this idea when he said, Success is a lousy teacher.  It seduces smart people into thinking they cant lose. 

Companies dont need to get big to fail.   Entrepreneurs must learn the lessons from the failure of the Mighty and they must keep a sharp focus on growing companies sensibly.  A quote from Anita Roddick sums it up nicely:

Nobody talks of entrepreneurship as survival, but thats exactly what it is and what nurtures creative thinking.