Autopsy of a Failed Business

Can business success lead to business failure? Yes. I’ve allowed it to happen. Five years removed from my time at one business, I had time to do an autopsy. Here is what I learned.

Failed business autopsy

A few months ago, Chris LoCurto posted about what he calls the clarity paradox. The question he asked is:

Why don’t successful people and organizations automatically become very successful?

He then presented four stages which moderately successful business often go through:

Phase 1: When we really have clarity of purpose, it leads to success.
Phase 2: When we have success, it leads to more options and opportunities.
Phase 3: When we have increased options and opportunities, it leads to diffused efforts.
Phase 4: Diffused efforts undermine the very clarity that led to our success in the first place.

The business I was a part of at the time went through all four phases.

Phase 1: When we really have clarity of purpose, it leads to success.

In 3 years, we became the largest privately held company in our field…in the nation. $18,000,000 in projected 2008 revenue. $11,800,000 in actual 2007 revenue. Best in Business Award from Nashville Business Journal. From one employee in above the garage to 52 and a posh office…in 3 years.

All because we had an intense clarity of purpose:

to be vastly different from the competition
to super-serve our clients
to provide a quality of product that was far superior to anyone else, even if it meant a lower volume of product.

Phase 2: When we have success, it leads to more options and opportunities.

Options. They sound so innocent, even attractive. Options diversify risk, right?

One option we had was starting a call center. It seemed like a good idea. No one else is doing it, so we should…despite that none of us had any experience in that area.

Or going into “just a little bit” of debt to buy what could be a powerful asset…except that the debt burdened us so much that we ended up doing nothing with the asset and lost a ton of money in the process.

Or working with a competitor that we knew would hurt our quality and cause us to lose customers…but those $250,000 monthly checks were so pretty!

Or…I could go on.

Phase 3: When we have increased options and opportunities, it leads to diffused efforts.

Like trying to run a call center, thus taking our focus off our core business. We spent more and more money on it and it only getting worse.

Or not fixing a faulty IT infrastructure that we easily could have rebuilt with cash on hand (had we not gone into debt), which led to needing more manpower to make up for the lack of automation.

Or fighting to keep customers due to poorer quality when previously we had almost no customer turnover.

The extra options lead to unfocused efforts and confusion within the organization.

Phase 4: Diffused efforts undermine the very clarity that led to our success in the first place.

Like operating out of a place of FEAR.

Debt leads to fear in business. Failure is suddenly an option. Your home is on the line. Your retirement fund is up for grabs.

Businesses cannot operate in a state of FEAR. It is impossible. It will destroy you. It will usually lead to the very thing it is trying to avoid…failure.

Clarity is non-existent through FEAR. FEAR is a dense fog through which no leaders can see.

We introduced FEAR when we opened a call center.

We introduced FEAR when we bought that asset.

We introduced FEAR (and loathing I might add) when we worked with that competitor.

Success can lead to failure…and I have learned now, it can also lead to more success…but that, my friends, is a story for another time.

Has success ever led to failure for you? Which of these stages spoke loudest to you?