General Misconception

The bankruptcy filing of General Motors sent a shudder through business owners everywhere, I suspect. “There but for the grace of God, etc:”

God, of course, has nothing to do with it. Complacency, ego, hubris, mistakes (genuine and absurd), self-indulgence, shortsightedness, a complete absence of perspective, a systemic inability to innovate, a belief that the company was simply too big to fail and a terrible economy all played their part.

But the truth is that Monday’s news was finally cast in stone by the delusion that prompted the company’s (now former) CEO to stand up last fall and announce that GM was “positioned to lead for another 100 years.”

The delusion that we needed GM more than GM needed us.

A few years ago I took a strategy class at the University of Chicago’s Graduate School of Business from one of the smartest strategic thinkers on the planet. Jim Schrager. He took us through the case study of a company called Head Ski.

You might have heard of Head. Or you might not . Today they sell a few tennis rackets. But back in the 60s they had an effective monopoly on the ski industry. If you skied professionally, you used Head skis. If you skied recreationally, you used Head skis. Gold medalist or 4 year old beginner, the same technology was on your feet.

Metal technology.

In the mid 60s, Head were better than anyone in the world at making metal skis. So when a year or so earlier, their small and insignificant competition had begun to experiment with fiberglass, Head had ignored them. When their small and insignificant competition had begun to sell a few pairs of fiberglass skis, Head had ignored them. When a few up and coming professionals had won a few minor competitions on fiberglass skis, Head had ignored them.

By the time anyone at Head realized they needed to be in the fiberglass ski business, it was too late. Everyone else knew more and did it better. As history came to prove, nothing they tried thereafter could bridge that gap.

Looking back analytically, it’s simple to see the mistake. They missed the innovation curve in their industry. They’re not alone in that.

But that’s not what’s important. What’s important is that in the epicenter of their success, Head was already a dead company.

We went through the case study for more than a day because none of use could believe this. It was inconceivable that a company at the height of its powers had no ability to control its future. Inconceivable, perhaps. True, unquestionably.

The fact is that when successful companies go out of business, it’s not a seismic event that takes them down but a series of decisions. And most of them happened before today.

In other word's success and failure happen over time. And if you don't have a clear plan you will always believe that where you are today is a true indicator of where you will be tomorrow.

It's not. Where you will be tomorrow depends on how well you understand why your customer is your customer.

In Head’s case they lost sight of the fact that their customers wanted the best skis. Not the best metal skis. They started to believe their brand was the attraction. Not what the brand meant to their customers.

GM did the same. All they saw was their own self-image. Part of the American dream.

Well today, they’re living a nightmare. Because they forgot one thing. You don’t get to decide what’s valuable to your customers. They do.

On the day we left the Whitehouse - the company we built for eleven years and then sold -  Chris's penultimate act before turning off the lights and setting the alarm for the last time was to remove from her phone a faded yellow sticky. On it, in her elegant hand, were written four words.

"Stay humble and nervous."

Are you?