Failure is an option…

As regular Readers of our blog will know, the Awbury Team is inherently paranoid (in the Andy Grove “Only the Paranoid Survive” sense). We are also regular readers of the transcripts from the Farnam Street blog’s excellent podcast series, which we can recommend as a window into the thinking of a diverse range of first-class minds.

So we read with particular interest a section in Shane Parrish’s recent conversation with Jim Collins (“Built to Last”, “Good to Great” to name a few of his published works) which dealt with how supposedly great businesses or institutions fail, often quite surprisingly in the eyes of the outside world.

In examining what causes such decline, Collins posited 5 stages, the first 3 of which are often hidden from outsiders, explaining why failures can often be unanticipated or unexpected.

Of course, one can reasonably ask how long in practical terms the potential lifespan is of any business model, but the point that Collins makes is that what become catastrophic or ultimately terminal failures usually have internal causes; and that failure should not be seen as inevitable for those who are aware of the risks.

The first stage harks back to the structures of classical Greek tragedy- when a character becomes so successful or powerful that this leads to arrogance, hubris in tragic terms. In the case of a company, its management comes to believe that it is somehow better than anyone else.

Interestingly, in stage two, Collins points out that, while one might think that this arrogance can lead to complacency, the real danger is overreach. Not satisfied with its level of achievement and market position, a company’s management aggressively seeks yet more dominance and growth, or believes it can translate its “success” into other areas. In essence, stage two behaviour amounts to a lack of discipline- say in the form of an ill-conceived but superficially attractive “transformative” acquisition. Clearly, there is a fine line here. There could be further apparent success, or stage two can imperceptibly shade into stage three, when hitherto unseen strains or imperceptible risks begin to surface, but management dismisses or chooses to ignore them- because they are so “successful” that the fault must lie elsewhere.

Now hubris (having passed through “ate” or folly) leads to the potential for nemesis (inescapable doom). Now the problems become visible externally, and there is some sort of significant failure or mis-step, which cannot be hidden or suppressed. Even now, there is still the chance of redemption and recovery if management is able to discern and understand the causes, and responds in a reasoned and disciplined way. However, in many cases, it does the opposite. The team panics and acts incoherently without thinking through consequences, or somehow hopes for rescue from an external source.

If that happens, with resources and capital exhausted, and leadership absent or remaining in denial, the business slides into oblivion or irrelevance, leaving the way open for the cycle to start again elsewhere.

At Awbury, while we certainly aim to be the “best in class” at what we do, we have no intention of succumbing to hubris, as we continue methodically and patiently to build and extend our franchise. To behave otherwise would be folly!

The Awbury Team

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