On Business Survival

With all of the recent talk of auto bailouts and Wall Street failures, a big topic around the watercooler has been why some firms survive while others fail. For example, why is Target able to successfully compete against Wal-Mart where Sears and K-Mart have not? Why Honda and Toyota and not GM and Ford? Why is Goldman Sachs still an independent firm but Morgan Stanley is being sold to BOA?

There is one school of thought that the “winner” in any given industry is more of a random occurrence. That is, out of all the big-box retailers started many years ago, one had to emerge as the biggest (Wal-Mart), and a handful of others had to survive to compete. Out of all of the cereals in the world, one had to become the best selling cereal in the US. Out of all of the digital music players to launch, one had to become the brightest star. While there is some reasonable logic behind this, I find the thought a bit disheartening when it comes to the work that you and I do every day for the betterment of our companies. I’d like to think that the sweat I put into my job every day has some tangible effect in the marketplace.

Therefore, I fall into the second school of thought – that managers can and should have a material impact on the survival of the firm. And, it is these decisions above all else, including industry dynamics and macro-economic factors, that have the biggest impact on the survival of the firm. My case in point – Steve Jobs. Apple has had the longest sustained run of value creation for its customers and shareholders than any other company I can think of this decade. And, a lot of that success has to do with the brilliance of its leader. Jack Welch is another great example. GE flourished under his leadership, but has since stumbled under Jeffrey Immelt.

So, does firm survival come down to leadership? I think a lot of it does, and as you know, I am a big proponent of cultivating strong leadership in organizations. However, I don’t think business survival is about a particular style of leadership or public flair. I think it’s about having the clarity of vision to know where you’re going and the fortitude to follow that path no matter what. Unfortunately for “losing” firms, having clarity of the “right” vision is perhaps the most important factor of all.

I also think company culture has a lot to do with it. Winning companies must have an enduring mechanism that outlasts any one CEO or generation of employees that sustains success over time. They have to have a superior mechanism that guides decision making, hiring practices, training, promotion, etc. That is culture, and it is critical.

Finally, I think a degree of deliberate conservatism doesn’t hurt. Be the tortoise, Danny. Some firms take big risks and succeed. Others take big risks and fail. We’ve seen this play out recently on Wall Street with the sub-prime mortgages. I often think a firm’s appetite for growth gets in the way of prudent business decisions. I tend to err on the side of Warren Buffet. I can’t think of anyone with a more deliberate and conservative approach to the market.

This topic has been and will continue to be a favorite of mine. I took a great course on it in b-school at Michigan. The professor is now at Duke University’s Fuqua School of Business. For further reading, visit his website at http://tinyurl.com/5lha5l. I’d love to hear more from you on the topic.