Why Do Companies Die?

Why do companies die? There are winds even if you get to scale and scope that will begin to drive a company down into a struggling bureaucracy, what we call the southward wind. Here are the forces that push the company to a struggling bureaucracy and eventual death:

  • Curse of the matrix

The matrix is here to stay. The whole point of good organizational design is to create conflict, and it’s because business is complex. You want your supply chain guy to try to drive costs out of everything by making the proposition the same, and you want your local market guy to fight for the local market difference.

The issue is not the matrix; the issue is conflict resolution and the speed of conflict resolution. When we talk about the curse of the matrix, it’s about something that leads to such slow decision-making that you destroy the energy of your company.

  • Fragmentation of the customer experience

As companies grow, aspects of what the customer sees and does with the company spread across the bureaucracy. Pretty soon nobody is accountable for the customer. One of the phrases that we often use is who’s the king of your organization, who’s the person actually completely accountable for delivering on the value proposition?

Very often, the companies can’t define them? They will say that it spreads across 23 people and that they don’t have anybody directly accountable. And therein lies the problem. No one is accountable for the customer anymore.

  • Death of the nobler mission

The problem is as you move from insurgency to incumbency, you lose that mission. You were originally at war in your industry on behalf of a dissatisfied customer. Suddenly, now you’re the incumbent defending the industry, defending the rules of the game, defending your own economics, and no longer on the nobler mission, and your people realize it far before you do. That mission is gone.

  • Complexity doom loop

The final one is the complexity doom loop. Why do companies die? As the organization grows, its operations become complex, and this complexity is what kills the growth. That is at the core of the complexity Doom loop; it is your own growth creating the complexity that will kill you or make it almost impossible to have strategy discussions.

Think about your company, when you started, it was pretty simple. You had a leader, you had a customer, and you had a front line. There was absolute clarity about the product that you sold, and the lines were pretty clear. The CEO could talk to anybody in the front line; they didn’t have to worry about hundreds of span breakers or various functional committees they needed to be part of. Everybody understood the product, and things were clear.

Then things start getting very complex. For example, as you’re talking now about the next percent of growth in your growth plan, you’re facing much more portfolio complexity than you originally did. You’ve got more markets, more adjacencies, more product lines, more service offerings, and that creates complexity.

You then try to organize around that and create organization complexity. There are lots of debates about how to organize best to capture all these adjacent opportunities. Then people try to resolve them with grand ideas about what we’ll do better with IT and information flows and create process complexity, as one CEO of a company said.

Then what happens is that complexity creates dissonance within the management team, which is its own complexity. A good day at the office is suddenly aligned, people stop talking about acting and doing anything, but they’re very, very content that they’ve at least aligned. The problem with complexity is it gets companies exhausted.

Decisions and conflicts aren’t being resolved, giving rise to the energy vampire. The energy vampires are those people in the organization sucking the life out of your talent and people by constantly blocking their action, and then that leads to exhausted leaders.

Then what happens, and I see this all the time in companies, is those leaders forget to do the one thing that leaders have to do, which is to simplify and try to deliver a strategy and a plan of action that is simple. It takes a lot of effort to focus and be simple. How do you strip that down again? How do you get back to where the lines are simple? I found it fascinating that when Tim Cook was asked shortly after Steve Jobs died, what is the one thing you learned from Steve Jobs? His answer was I learned focus is key.

Wrap Up

Why do companies die? Companies die because of the curse of the matrix, fragmentation of the customer experience, death of the nobler mission, and complexity doom loop. A lot of companies now are thinking about their partners as a means to bring back the founder mentality. It used to be automatic if you thought about acquiring a company, your first job was to make it into yourself.

We are now seeing CEOs hesitate and say, actually, if I acquire a founder-led company, I want that mentality to actually influence me.






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