One key reason for failure is the relentless march of trends. Many entrepreneurs and managers fail even when they work hard and even when they seem to be competent. This is often because they do things right, but they don’t do the right things. They often fail because they do not adjust to dynamic changes that affect their competitive advantage. These changes can be caused by trends, and one reason for new trends is innovations.
There are two types of innovations that create new kinds of trends:
- Evolutionary innovations are minor changes in a major wave of innovation. This type of innovation includes “minor” improvements in an existing industry. It gives a small edge and some momentum. But competitors catch up – unless the instigator of the trends happens to be a Steve Jobs who is able to do a non-stop, continuous series of evolutionary innovations to develop a strong lead. Evolutionary innovation often rearranges the chairs on a ship, i.e. changes leadership among existing companies.
- Revolutionary innovations create emerging industries that change the ground rules of established industries and allow new entrepreneurs to storm the citadels of established companies. Personal computing was one such revolutionary innovation that allowed new entrepreneurs to build giants. This was followed by other revolutionary innovations such as laptops, iPads, etc. The Internet’s impact is still being felt and will be for the foreseeable future. Revolutionary innovations often need new business models and require major changes to the existing structure of the business.
Most businesses handle evolutionary innovations well. They imitate and catch up. However, not many businesses handle revolutionary innovations with the skill and daring that is needed. Consider the case of Borders and Barnes &
; and the decline of
The other reason for failure is captured in an old saying which notes that businesses go from pushcart to pushcart in three generations. This scenario goes as follows:
- Grandfather was an aggressive immigrant, or person from the lower middle class, who found an opportunity and started a business. He did not have capital, so he bootstrapped. He built the base, but he did not have the expertise and the resources to build a giant. By the time he finished building the base, he was too old. Or he reached the limits of his capacity in a small-midsized business.
- Father went to business school where he learned the theory of business. But he soaked in the practice of business from his father. Importantly, since his family was not rich as he was growing up, the father was forced to work in the business at a young age. He learned how to sell, and he learned accounting. In business school or with his own smarts, he learned how to market to a wider audience. Using the base built by the grandfather, father built a national giant.
- Son (the grandson of the founder) grew up in a mansion in the suburbs. He learned privilege at a young age. Selling and working was something that others did for a living. He did not have to work. When it was time to take over the business, he either sold the business or drove it into the ground.
I do not know how common this is, but I have funded and worked with sons and grandsons who fit the above mold. Business can be difficult, competitive, and stressful. So a retreat to the good life can be tempting, especially when the option exists. This is one reason why some leaders make sure there are no options for retreat. As the famous story goes, this is why Cortez burned his boats. There would be no retreat. It would be glory or death.
MY TAKE: The move to irrelevance and failure is currently happening in many industries due to the relentless march of the Internet. The Internet is affecting banking, especially small banks, and universities (see my previous blog). Business failure happens because grandchildren, or corporate managers who grew up in the old system, do not know how to adjust to revolutionary innovations. This is lucky for new, hungry entrepreneurs. Luckily for established businesses, revolutionary innovations are infrequent. This is perhaps one reason why failure seems to skip a generation. But lately, revolutionary innovations seem to be affecting more industries and with increasing frequency. So if you are a grandchild, watch out.