How to Predict a Company Crisis: Uber, Lego, Marvel Comics | Chris Zook

Y’know, overload – just think of all we
see of Uber in the paper. We found four things that we called the “west
winds” that hit rapidly growing companies and push them off track, and we called them
the west winds. And one was having revenues growing much faster
than you can grow talent. And just think of Uber, which has had as many
as 13 of its top 20 positions unfilled and that has been having difficulty recruiting
the most talented women because of some of the cultural issues. And when your talent is not growing at the
same rate as your revenues breakdowns begin to happen. A second element of the west winds is what
we call lack of accountability. And you can look at the culture as it evolved
in Uber, which has been well reported, and say, “who is really accountable for the
norms and values—deep, soulful values—of a company?” And it’s very easy to neglect that in the
context of growth and hype and excitement and celebrity. Or a third one, or a third of these winds
is what we called lost voices from the frontline. And if you look at, for example, the loyalty
numbers that you can find all over the internet of Lyft versus Uber drivers, what you find
is that the loyalty of Uber drivers is going down, because they’re a little bit frustrated
with a lot of the publicity and with some of the behaviors that they’ve observed,
and they’re more disoriented about the company. And so these west winds hit rapidly growing
companies. And what we found is that when we looked at
these unicorns, we took 26 unicorns about 10 years ago, 10 to 12 years ago, and we traced
them. And we found that virtually 100 percent of
them—and two-thirds of them had slowed down dramatically and never hit what people wanted
them to. Uber would be an example. And second, we found that in virtually all
of the cases the deep inner root cause was not that it was a bad idea in the first place
or the market had gone away; It was actually inner breakdowns like this case. And all of these linked to the founder’s
mentality, 1) of linkage to the frontline, 2) maintaining a clear purpose versus overcomplicating
what you’re trying to do and becoming greedy and doing too much, and 3) creating mini founder
experiences that make people really want to become part of it. The second crisis is the more predominant
crisis, and it’s what we call a stall-out. So if you think of a company, let’s say
like Lego, which since the 1930s was a great founder company through three or four generations. The first did it in wooden blocks. The next brought it to plastic. The next created the business systems. And it was voted the toy of the year by the
British toy industry. And yet the next generation began to say “No,
what our core is is the brand. We’re not a toy company.” And so they went into many, many things that
massively complicated the business from theme parks to joint ventures with Steven Spielberg
in small theaters to retail endeavors to plastic watches to books, and on and on and on. And it sucked the energy out of the core and
resulted in stall-out to a point where the company had 18 months of cash left. And the solution to that was to massively
reduce complexity, exit all those businesses (by the CEO who courageously went in, Jorgen
Vig Knudstorp, well reported in the press) and it gave the company 12 years. He brought technology into the bricks. He found out who the core customers were. They didn’t know there were 400,000 people
who are obsessed with Lego, they brought them into the design process. And they did many, many things to actually
go back to the essence of what made the company great in the first place, which was the mission
of learning, and the customer desire for toy systems that would help children creatively. And they even did things like take the corporate
headquarters (which was in a bright, gleaming new building) and brought it back into the
factory and the distribution center. So that’s an example of stall-out, and that’s
an example of a company that then had 12 years of very, very good growth as a result of,
in a sense, finding the key to it—where the Founder’s Mentality elements were part
of the playbook. The third one is free-fall, and this is where
the business model really does come into question. And in nine out of ten companies that see
their business model become potentially obsolete—Blockbuster Video—never make it, never make it. But some do, some do. When you think of what happened to Marvel
Comics and the rebirth of Spiderman, that was a company where people weren’t buying
comic books any more, and yet a group of investors and some of the original employees brilliantly
saw that it could be repurposed around the stories and the characters for videos, for
video games and for movies, and completely changed the business model. But the essence of that also… and now owned
by Disney… but the essence of that also was actually going back to say, “What is
our real purpose? How do we contact the people at the front
line, and how do we create new owner’s mindset?” which they did through private equity. And so when we look at these three critical
crisis periods (of stall-out, overload and freefall), we found these elements of a Founder’s
Mentality where both previous indicators of losing internal health—that could have been
seen earlier, and then second, there were elements of the playbook of rejuvenation. So the first thing to me is, I realize in
even our own country, America, is a country of founders. And when you lose the founder’s mentality
as a country you lose something in your soul. The second insight for me is how breakdowns
occur inside first. You know, in our bodies, if we’re not performing
well in sports or at work or in our life, so much of that is not because we don’t
know how to hit a tennis ball or we don’t know the mechanics of our job, more often
it’s something that’s going on. We’re distracted, we’re tired, we’re
not feeling healthy. Something else is bothering us in the environment. And that’s true of companies too. I think the idea that 85 percent of the breakdowns
of organizations were preexisting conditions under the surface—like an iceberg—that
could have been seen is a very powerful lens and it’s reshaping how we think about strategy
and the deep root causes of success at Bain. And the third theme is complexity. You know when uh about 12 years ago I moved
to Amsterdam with my wife (and we just came back), and we lived there. And when we left we decided that our lives
had been too complex. And so we sold half of our things and cleaned
out all of our closets. We stopped all our magazine subscriptions. We did many, many, many things to create more
of a tabula rasa, and we took nothing with us to a new country. We bought new furniture. We got a new house. We made friends there. We tried to learn the language, et cetera. And yet now we’ve come back to America and
our complexity has all crept back in. It’s like barnacles that accumulate on a
boat. And if that’s true for two people who are
self-aware of this and control their lives, imagine how true it is for organizations of
thousands of people, dozens of business elements, myriads of departments, thousands of products,
dozens of geographies—the complexity accumulates. And so complexity is the silent killer of
growth. That’s the third, I think, big insight. Complexity is the silent killer of growth. And it happens at the level of the company,
as it did with Lego. They eliminated everything but the toys when
it went back to renew itself. It happens at level of an organization, where
power flows into big corporate centers when it should be at the frontline. It happens at the level of processes—If
you read Jeff Bezos’ recent shareholder letter on Amazon he talks about when process
becomes the outcome you’re in real trouble. And very often “I followed the process”
is what people say to protect themselves. And it even happens at the detailed level
of products. We look at how some startups have taken over,
or how online banking with just the simplest stick figure business model can take over—from
huge gigantic multinationals—take over a lot of market share. And so to me these are the three lessons are
the deep inner root causes are often under the surface and need to be found, the roots
of leadership and humility are in the great founders and we need more of them, and they’re
the national treasure, and that complexity is the silent killer of growth and progress.

Leave a Reply

Your email address will not be published. Required fields are marked *