What Startups Can Learn from Failed Businesses

Why businesses fail

A few years ago, I spent a lot of time studying the causes of business failure. I reasoned in my mind that to succeed you first have to not fail. So why not look at all of the causes for business failure and see what lessons I could take from it that would prevent failure? I read numerous books on the topic. How the Mighty Fall by Jim Collins is one of the top five books I've ever read about business. It has shaped my perspective on what it means to build a great company. Another one that stood out was Good to Great to Gone which was the inside story about the fall of Circuit City, the once great electronics retailer. 

There are many causes of business failure, but probably the most common is the failure of businesses to respond to a changing environment. In nearly every case, something that was once true, no longer held true. In Circuit City’s case, customers wanted cheaper goods and broader selections. Their pristine large stores that were once an advantage, started losing out to Best Buy’s smaller stores that had stock and boxes all over the place. Customers didn't seem to mind because Best Buy had significantly cheaper prices. Who cared if there were boxes on the floor? In fact, the boxes actually added to Best Buy’s warehouse feel, signalling that they weren't spending money on things that didn't matter.

Seeing and executing are two different things

The thing that happened in nearly every case was that the company saw it coming. Circuit City definitely saw it coming. They knew the market had changed, but they were unable to respond—like a person who is 200 pounds overweight with heart disease but continues to eat cheeseburgers. Knowing what needs to be done and being able to execute on it are two different things. Circuit City entered the death spiral and never recovered. 

Bureaucracy kills agility

Bureaucracy is another great evil that often develops in companies. It prevents companies from being able to change and adapt. For me, I know the time to leave a job is when the bureaucracy overcomes the desired mission of that organization. When you find yourself ticking boxes, filing in forms, sitting in meetings all day and other such activities, it's time to move on. This has happened to me a few times in my career.

 What happened to those organizations I left? They usually tried something that didn't work, and to ensure that failure didn't happen again, someone organized a committee to reduce risk by making sure all future decisions were run through that committee. Talk about a death loop.

They always meant well, but their structures and processes prevented them from changing. And if nothing changes, nothing changes. Their fear of failure overcame their desire for success. Their past was brighter than their future. 

In many of these orgs, on an individual level, the desire to cover one’s arse had become more powerful than the thrill of making something incredible. The desire to make a difference had given way to the desire to fit in. Bureaucracy is where great companies go to die.

Startups are anti-fragile

One of the most powerful reasons startups win is that they don't have all these sorts of internal hurdles to overcome. They start with a fresh slate, and they move fast and create things. They don't have to deal with risk committees and governance concerns and financial covenants. They can create and build. It's the most exciting vocation in the world—to create and build the future. 

But there's a dark side to startups that no one ever talks about. I've written about it the last few weeks. It's so incredibly hard. Creating something from nothing is the hardest thing you'll ever do. There's no book that can help you, no person you can ask, and no blueprint to copy. You're literally making it up as you go along. If it had been done before then someone would be stomping out startups like a cookie cutter stomps out cookies. But this risk is the necessary counterbalance to living without bureaucracy. 

Startups must #findaway

Another difference between large companies and startups is that startups are focused on outputs. Startups will put up with people who dress funny, look funny, and talk funny if they produce results. Startups require particular sorts of people who are dead set on finding a way, no matter what it takes.

When you work for a startup, you need to have a bias for action. You need to take ownership. You need to deliver results. You need to make shit happen. You need to get it done. No matter what it takes. You are responsible for finding a way. Nobody is going to cover your ass for you. That’s not how startups work. 

Don't talk about it, be about it. Don't make excuses, make progress. Don't worry about things. Work so hard that you don't worry.

Remember, successful startups need to achieve in a month what takes other people a year to achieve. That's why every single early stage hire has to have one trait in common: No matter what obstacles are put in front of them, they #findaway around, over, under, or (my personal favorite) right through the obstacle. 

People like that are in short supply. If there were 12 of them knocking on my door right now for jobs, I'd hire them immediately. Because the number one limiting factor in any company's growth is the number of leaders they have with this attitude. Find these people, and turn them loose in your organization. 

One last aside on this topic: One of the main reasons that people don’t want to #findaway is that they’re worried about upsetting someone else. Fear of conflict is a virus that will spread and destroy a company if left unaddressed. Always prioritize feedback over feelings. The mission of your organization is too important to settle for mediocrity. 

→ Your turn. After reading more about what kills great businesses, what is one big change you’re going to make in your organization?