Coda

Okay, we realize we just threw a lot of information at you. The sheer volume of failures may feel overwhelming and may make you feel as if we’re telling you to just sit inside all day, for fear that if you venture anywhere you’ll get run over by a semi. Some of the information may also feel like it overlaps—because it does. Strategies that pursued synergies sometimes failed for the same reasons that moves into adjacent markets did, and adjacent-market strategies sometimes failed for the same reasons that consolidation strategies did. There’s no getting around it.

Before moving into part 2, which holds the real payoff, we want to make two points. One is about whether you should avoid any bold strategy for fear of failure. The other is about the overlap.

First, we aren’t at all suggesting that aggressive strategies for growth are doomed to failure. It’d be stupid to suggest that, because there are so many counterexamples, offered by healthy, growing companies. We’ve tried in many cases to cite examples of companies that succeeded by pursuing one of the seven strategies that we’ve found are most often associated with major failure. We even note that one of the seven types of suspect strategies is doing nothing, like those companies mentioned in chapter 4, “Staying the (Misguided) Course.”

Rather, we beat you over the head with all the stories about failure because they’re so often ignored. Everyone wants to read about those healthy, growing companies and about how to emulate them. So, to get everyone focused on the flip side of going from good to great, we felt we had to offer lots of evidence about the breadth and depth of the failures that have occurred in corporate America. We want you to take us seriously in part 2 when we lay out ways to double-check yourselves, to make sure you don’t join our list of failures.

We’re well aware that many people feel that any attempt at double-checking opens the way to second-guessing and can paralyze a business. But we think you’ll agree, after reading part 2, that the methods we lay out require modest time, effort, and expense. Good ideas should continue to sail through and be implemented as successful strategies.

Second, concerning overlap, we’ll suggest that some reasons for failure are more equal than others. If you want to look across all our failure cases and boil them down to the most common, the main problems to watch out for are these:

• Underestimating the complexity that comes with scale. Companies begin with a simple, perfectly reasonable argument that goes something like this: We have a certain amount of fixed costs for running our business; expanding will let us spread those costs over more revenue, meaning that overhead expenses will drop as a percentage of the total business. We’ll be more efficient. What companies often don’t allow for is that when they double in size, they aren’t just doing precisely the same thing, twice as many times. They may be dealing in different markets, with different customers, different sales channels, and so on. Car companies and computer makers are famous for saying they’ll share parts across product lines, then “optimize” those parts for a particular car or computer—once you tinker even a bit with a part you’ve lost almost all the benefit that would come from having a truly common part.

• Overstating the increased purchasing power or pricing power or other types of power that come from growing in size. That’s the sort of claim that looks reasonable on a PowerPoint slide but that doesn’t hold up to scrutiny, because it is based too much on an internal perspective. Doubling or tripling in size feels like a real achievement to those inside the company, but the outside world may not notice. If the company remains a small part of the industry, it still isn’t going to get much purchasing, pricing, or other power.

 
The term “critical mass” sets off alarm bells in our heads. Anytime we hear a company claim that it’s going to get critical mass, we worry it has overestimated the power that size will give it.

• Overestimating your hold on customers. Certainly, customers can be creatures of habit. Absent some reason to change, they’ll probably keep shopping where they always have. They’ll have loyalties to certain brands, certain products. But, as many retailers have learned, customers don’t like change. You may think you aren’t doing much, but if you put a new name on the door, change the pricing strategy, and alter the product mix, customers may well head next door. And, as some of our failure cases show, companies sometimes talk themselves into truly strange ideas about their tight relations with customers—think of the utility that decided people would buy its insurance just because they bought its electricity.

• Playing semantic games. It may be true that you have a “culture of caring,” as Avon claimed, but that isn’t enough to help a cosmetics sales staff figure out how to run nursing homes. Any strategy that relies on a turn of phrase—such as saying that railroads were really in the transportation business, not the railroad business—is open to challenge.

• Not considering all the options. We all live under this imperative to grow. We all understand that the survivors are the ones who are remembered. So we try to grow and survive—even though our fiduciary duties dictate that, at times, we should forgo certain attempts at growth because they’d just be a waste of money. Even harder, we should sometimes consider selling the business; that way we’ll collect a high valuation, while if we try to hang on, we’ll just fritter away the value of the business.

• Overpaying for acquisitions. But you didn’t need us to tell you that. There’s already a wealth of information about the fact that businesses often overpay when buying other companies.

 
Now, on to the meatiest and most satisfying part of the book: principles that build on our research into failure and offer you a greater chance of succeeding—by diminishing your chance of failing.