Obsolete Businesses

“This Too Shall Pass”

 

 

Have you heard the story behind the phrase “This too shall pass”?  Here is one version of the folktale:

One day Solomon decided to humble Benaiah ben Yehoyada, his most trusted minister. He said to him, “Benaiah, there is a certain ring that I want you to bring to me. I wish to wear it for Sukkot which gives you six months to find it.”

“If it exists anywhere on earth, your majesty,” replied Benaiah, “I will find it and bring it to you, but what makes the ring so special?”

“It has magic powers,” answered the king. “If a happy man looks at it, he becomes sad, and if a sad man looks at it, he becomes happy.” Solomon knew that no such ring existed in the world, but he wished to give his minister a little taste of humility.

Spring passed and then summer, and still Benaiah had no idea where he could find the ring. On the night before Sukkot, he decided to take a walk in one of the poorest quarters of Jerusalem. He passed by a merchant who had begun to set out the day’s wares on a shabby carpet. “Have you by any chance heard of a magic ring that makes the happy wearer forget his joy and the broken-hearted wearer forget his sorrows?” asked Benaiah.

He watched the grandfather take a plain gold ring from his carpet and engrave something on it. When Benaiah read the words on the ring, his face broke out in a wide smile.

That night the entire city welcomed in the holiday of Sukkot with great festivity. “Well, my friend,” said Solomon, “have you found what I sent you after?” All the ministers laughed and Solomon himself smiled.

To everyone’s surprise, Benaiah held up a small gold ring and declared, “Here it is, your majesty!” As soon as Solomon read the inscription, the smile vanished from his face. The jeweler had written three Hebrew letters on the gold band: _gimel, zayin, yud_, which began the words “_Gam zeh ya’avor_” — “This too shall pass.”

At that moment Solomon realized that all his wisdom and fabulous wealth and tremendous power were but fleeting things, for one day he would be nothing but dust.*  (http://www.wscribe.com/parables/index.html)

The story I am more familiar with goes like this:

 

It is said an Eastern monarch once charged his wise men to invent him a sentence, to be ever in view, and which should be true and appropriate in all times and situations. They presented him the words: “And this, too, shall pass away.”* (Wikipedia)

 

Why do I recount these stories about that phrase?  Because that phrase is all too true in the world of business.  Where once businesses thrived and brought great joy to customers, investors and employees alike they now close their doors and move their jobs overseas.  Management teams once considered “masters of the universe” have become vulnerable and uncertain – uncertain about what they need to do next and uncertain what is important.

 

What changed over the years?  Many of us can remember back to the 50’s and 60’s when people had their struggles but there were some certainties in life.  You graduated from high school, got a job in the local factory, bought a house and raised a family.  You ordered a car built in Detroit from the local auto dealer, waited 8 or 12 weeks to have it delivered and then watched it rust over the next four or five years.  Kids played unsupervised until dark and neighbors watched out for the safety and behavior of all the kids on the block. 

 

All of that has changed.  Kid’s activities are organized.  We buy cars built all over the globe from dealers we don’t know.  People graduate from high school, go off to college and never return to their home town.  People don’t just drop in to visit any more and the parents of neighbors don’t raise their voices to other people’s children.

 

You may wonder how we got to where we are.  We did it just like we do most other things – one step at a time.  And just as the general culture has evolved so has the expectation of the customer.   Look at the automotive industry in its early days.  First we had Henry Ford willing to sell a car of any color as long as it was black.  Then William C Durant formed General Motors and offered a variety of styles and colors.  Henry Ford had to close his doors for a year and retool in order to compete with the new set of customer expectations.   In today’s world we are talking about mass customization where a customer can pick and chose options for his/her car and still have it delivered in a couple of weeks. 

 

The changing competitive environment spells disaster to those companies that can not adapt.  Obsolete products and processes mean shrinking market share and reduced profits.  I work with established companies that are experiencing either sales or profit problems or are uncertain about how to sustain growth over the next few years.  These are companies that started years ago, had success, grew and then over time saw the bloom fade off their rose and know troubled times are at hand.  

 

The problems these companies are facing are not due to a lack of effort or intelligence by the management teams and the employee workforce.  Quite often we see some of the hardest working people busy in companies that are going under.  And it is precisely for that reason that these people are working so hard.  They are baling out the water that is trying to sink them.  They don’t have enough time to do non-urgent and important activities because they are too busy doing the urgent and unimportant tasks at hand.  They are caught up in the daily tactical cycle putting out one fire and the next and never having quiet moments to figure out what problems are at the core of the business.

 

A frantic work pace becomes the norm.  The thinking of management takes on a more critical view of their workers.  Those employees who go home at the end of the scheduled work day are looked down upon.  Apparently they don’t share in the sense of urgency felt by others.  The people who really understand how important work is stay late for the survival of the business. 

 

Company executives try everything they know without gaining the results they are looking to achieve.  Years have been invested in creating and trying to execute new strategies only to see little, if any, progress.  Now they are willing to try something slightly different.

 

Sometimes the problem exists because the executives of these companies lack the understanding of what the overall competitive environment was like when the business was first started.  They don’t know the context of the company in those old glory days.  Because they don’t know what it was like back then they fail to understand just how much the environment shaped the business design.  Now pause a moment and fast forward to today.  Take that business design from those long-passed glory days and insert it into today’s world.  Most of those designs no longer work.  They have become irrelevant.

 

This is apparent in Tom Peter’s book “Re-imagine”.  Mr. Peter’s discovered that of the top 100 companies in the US in 1910 only 18 survived over the next seventy years and only 2 outperformed the stock market.  He further substantiates that point by noting that of the S&P 500 companies in the 1950’s more than 80% failed to exist 40 years later. 

 

This tells us that business designs do indeed become obsolete.  What worked 70 or even just 40 years ago no longer provides what is needed in today’s world.  When customer expectations, competitor offerings and/or new materials change so must designs.  The question is not how good is the quality of the design but instead how good is the design in relation to the current environment?

 

When you look at how relevant the business model of a successful company is today you can rest assured that as the environment changes “this too shall pass”.