How the Mighty Fall

Published on December 11, 2019

By Dan Huckabay, President
Commercial Surety Bond Agency

Some might recognize the title of this article, as it was borrowed from a book written by Jim Collins. In his book, Collins explores why certain companies that rose to become the best in their industry eventually spiraled downward. Companies like Circuit City, Kodak or Sears that once dominated their respective sectors and have faded away to irrelevance. What did they have in common?

While the specific details each company goes through might be different, Collins identifies five stages that many companies have in common, which are outlined below.

Stage 1: Hubris Born of Success
The word “Hubris” is Greek and means “exaggerated pride; self-confidence”. Very few who read this will ask themselves, “I wonder if that applies to me?” Most of us tend to think we are humble and there is no way our pride or ego would get the best of us. That’s partially because we compare ourselves to people like Howard Hughs or Kim Kardashian and think, “I’m nothing like them”, but ego and pride are on a scale, and just because we don’t have as much as somebody else on one extreme, doesn’t mean what we do have can’t get us into trouble.

Ultimately, ego and pride impact our ability to see the truth about ourselves, our company, and the world around us. One of the main examples of this is losing sight of what got you to where you are. Many of us become entitled to our current status whether we realize it or not, and our actions often show it. Afterall, how many of us can honestly say that we work as hard or are as frugal today as we were when we first started?

Stage 2: Undisciplined Pursuit of More
According to Collins, “Companies in Stage 2 stray from the disciplined creativity that led them to greatness in the first place, making undisciplined leaps into areas where they cannot be great or growing faster than they can achieve with excellence—or both. When an organization grows beyond its ability to fill its key seats with the right people, it has set itself up for a fall.”

I underlined that last line, because it is particularly relevant in today’s construction market, where some companies want to continue growing despite not having the qualified people that are the same caliber as the people that made them successful in the first place. I occasionally see owners accepting “B” or “C” rated people and unintentionally lying to themselves by calling the employees “A’s” even though they are untested. Then they take on more work with these less qualified people or worse yet get into a new market where the company has little to no experience.

Stage 3: Denial of Risk and Peril
When the people or projects don’t work out, I see many contractors do as Collins observes of “blaming external factors for setbacks rather than accept responsibility.” You’ll hear things like it was a tough owner or the employee screwed me. That’s not to say those things are never true, but often the owner has more responsibility than they are acknowledging. As Peter Drucker puts it, the ultimate responsibility for hiring decisions always falls on management.

Stage 4: Grasping for Salvation
This stage is where people look for solutions other than simply returning back to basics. Collins adds, “The longer a company remains in Stage 4, repeatedly grasping for silver bullets, the more likely it will spiral downward.” In the book Level Headed, the former CEO of Sundt Construction, Doug Pruitt, describes being in this stage in the mid-90’s and facing this very decision. As he put it, “Sundt was about to go back to the drawing board of business fundamentals and relearn all the things we had somehow forgotten about how to run a successful.” There is no shame in taking a step backwards in order to move forward, and Sundt’s rise from the brink of the abyss is a perfect example.

Stage 5: Capitulation to Irrelevance or Death
According to Collins, “In Stage 5, accumulated setbacks and expensive false starts erode financial strength and individual spirit to such an extent that leaders abandon all hope of building a great future.”

Conclusion
Collins summarizes the whole concept well by saying, “I’ve come to see institutional decline like a disease: harder to detect but easier to cure in the early stages; easier to detect but harder to cure in the later stages. An institution can look strong on the outside but already be sick on the inside, dangerously on the cusp of a precipitous fall.”

There is good news from all of this Collins concludes, “Our research indicates that organizational decline is largely self-inflicted, and recovery largely within our own control. So long as you never fall all the way to Stage 5, you can rebuild.”