Why Societies—and Companies--Collapse

In his terrific book, Collapse, science writer Jared Diamond examines some of the most famous failed civilizations of prehistory and history— from Easter Islanders to the Anasazi of New Mexico and the Viking settlers of Greenland. I bought the book because I found the subtitle intriguing:  How Societies Choose to Fail.  I had never considered the possibility that societies had a choice in the matter—but it turns out they do.

Diamond concludes that societies collapse when they fall on hard times and make one or more of four fundamental mistakes:  (1) Fail to anticipate problems; (2) Fail to respond promptly when problems arrive; (3) Exhibit something he calls “bad” rational behavior; and (4) Adopt “disastrous values”.  I don’t know about you, but I think this is a pretty good list for business failure too.

Businesspeople—especially entrepreneurs, are optimistic folks.  We don’t like to spend a lot of time dwelling on bad things that might happen to us. It brings people down.    Besides most of the problems we see coming at us often veer off the road before they get to us, anyway— right?  Tell that to my friend that recently used a bank credit line to finance a major acquisition, only to have his core business take a nose-dive and put him in default.  Or to another friend who decided to open a new plant at the same time as he was launching an important new product—both were major money losers as his team was spread too thin to do either project justice.  The fact of the matter is, most entrepreneurial leaders are not all that great at anticipating problems.  We are great at figuring a way out of most messes we create—but don’t ask us to predict them before we create them.  It brings us down.

And if entrepreneurs are bad at predicting problems coming down the road, we’re not always all that prompt in responding to them either.  Too often, we wait until a problem is a full-blown crisis—and then we don our asbestos coats and rush into the flames with a fire hose and a set of rosary beads.  And most successful entrepreneurs are good enough fire fighters that they most of the time emerge from the flames with a singed smirk on their face.  Until that one time they don’t.

For most of us, it takes one good near-death experience for us to get religion and start anticipating problems and addressing them before the melt down.  For me that time came when we had to lay off 68% of our staff because we allowed a business model problem to become a full-scale capital crisis— triggered by the loss of a big customer.
As I looked at the termination paperwork of the last person I laid off (the 198th person—to be exact)—I realized in business we have no choice but to adjust our thinking. But we can choose HOW we adjust our thinking: Either incrementally as we go along, or more occasionally—in periodic and painful collisions with a new reality. Better to anticipate problems, respond immediately, and take your pain in small doses.

Another mistake that can cause a collapse is what Diamond calls “bad” rational behavior.  What is bad rational behavior?  Look at the way many companies cut costs.  I know a public company that recently announced that it was reducing travel budgets across the board by 60%.  In this and most organizations—salespeople spend most of the travel dollars.  And when you tell a sales person we don’t want you to do what we are paying you to do (get on the road and make sales presentations), it’s pretty demoralizing.   Instead of biting the bullet and terminating, say, the poorest performing 10% of its sales people—or exiting a line of business— the company decided to demoralize the entire sales force—at a time when it’s market share is plummeting.   

That’s bad rational behavior.  

Think there aren’t bad rational decisions in your company?  Forward this article to a few people in your organization and ask them to list some examples—you won’t be short of reading material.

Finally, societies (and companies) collapse because of what Diamond calls “disastrous values.”  More often than not, these are values which allow a company to succeed at one stage of development—but then undermine it in a later stage.   For example—most successful early-stage entrepreneurial companies are pretty CEO-centric.  In fact, research suggests that nothing is more important in predicting the success of an early-stage venture than the quality of its leader.  But as organizations grow and become more complex—often they need to change from a CEO-centric firm to one in which key people throughout the organizations make autonomous decisions and contribute meaningfully to the company’s strategy.  The fact that that only about 1.5% of all American firms ever reach $25 million in sales suggests that too many hold on too long to this or other disastrous values.