Why Do Companies Fail? – Some hints from Megan McArdle

So, why do companies fail?  A lot of them do, you know.  And more will fail – some of them fairly soon.  I don’t know which ones, and I don’t know all the whys, but there will be companies fail…

In this the Atlantic article, Why Companies Fail: GM’s stock price has sunk by a third since its IPO. Why is corporate turnaround so difficult and rare? The answer is often culture—the hardest thing of all to change, Megan McArdle tackles the question.  Here are a couple of quotes with insightful hints:

All seem to agree on one thing: most companies wait far too long to even recognize that they have a problem.
Change is risky, after all, since it definitionally involves doing something that isn’t already working—and even product lines that have grown lackluster still have some customers.

Here are two valuable hints:

Hint #1 – failure to acknowledge reality; failure to acknowledge “we have a problem.”  This is a universal!  Political parties have this blindness; football team owners have this blindness.  And, I suspect you and I have this blindness.  To see a problem early requires paying great attention to reality, and most of us are a little afraid of taking such an honest look at reality.

Hint #2 – focusing on my “long-term customers” while ignoring the need to find “my next customer.”

This reminds me of this excellent counsel from the UCLA Health Care system (from Joseph Michelli, Presecription for Excellence):

“No matter how good we are today, it isn’t good enough.  Everything we do must be of the highest quality, and we have to be in a relentless pursuit of constant quality assessment and enhancement.  I am pleased with where we are today…  However, each day I think about one thing:  what can I do as a leader to make sure that our quality of care is the best it can possibly be – you guessed it – for our next patient?”  (Dr. David Feinberg, CEO, UCLA Health System)
Create the quality experience for your most important customer – the next one.

So, to avoid failure, (to succeed!), it might help to be honest about problems, and to keep looking for that next customer.