This article is inspired by the Ten Commandments for Business Failure — an interesting book written by Donald Keough. Don is on the board of Berkshire Hathaway, Allen & Company and The Coca Cola Company (where he worked for over four decades).

He has also been on the boards of Columbia Pictures, McDonald’s Corporation, The Washington Post Company, H. J. Heinz Company, and The Home Depot.

In our obsession with success, we often forget that it is equally, if not more, important to avoid failure.

This article is in the spirit of Charles Munger, who says, “All I want to know is where I'm going to die so I'll never go there.”

Here are the Ten (plus one bonus) commandments, that share the wisdom and business insights gathered over several decades and of immense value to any manager, businessman or investor.

Companies/executives displaying early warning signs of any of these are bound to fail:

Quit taking risks: As companies become large and have been in existence for a long period, their appetite for risk reduces.

There’s a reputational issue if their experiments fail in public, making it easy for companies to fall into the trap of not taking risks.

For example, most of the inventions in computers such as the graphical user interface or the mouse came out of Xerox, but the company never risked taking them public — as a result forgoing the success that it could have had to Apple and Microsoft.

As finance professors say, without risk there is no reward — no free lunch you see. In fact, the very reason that these companies grew to be so big in the first place was because they made few risky bets that paid off handsomely.

Be inflexible: It’s a cliché, but in today’s world of creative and technology driven disruptive innovation, change is the only constant. Companies that are not agile and quick to react can easily perish. Don mentions the case when Coke lost market to Pepsi during the 1940s because the company fell in love with its six-and-a-half ounce bottle, while Pepsi had launched a 12-ounce package.

Coke refused to change and it took them over a decade to realise their blunder.

Isolate yourself: It is easy for successful companies and people to get into a bubble, making them insulated from the real state of affairs and easy prey for companies that are hungrier.

Signs of isolation can be visible in something as benign as the office layout where senior executives disconnect themselves from the rest of the organisation by having separate floors for themselves, direct elevators, and all the other indulgences that come with position and power.

It also displays itself, when bosses surround themselves with yes men, breeding a culture of sycophancy where no one has the guts to face facts. This is a particularly easy trap for firms in financial services business.

Who knows, maybe this too is one of the reasons why big financial institutions go bust.

Assume infallibility: Success breeds over-confidence, which is the beginning of downfall.

Companies and leaders, who do not accept problems or mistakes, miss the opportunity to fix them until it becomes too late. Humble leaders who consider their companies larger than themselves and the society larger than their companies are the ones that are truly infallible.

Play the game close to the foul line: Trust is the key for any business venture to survive and thrive in the long run. It is hard to retain customers, employees and investors when there is sense of trust deficit and foul play.

In tennis, when you play too close to the line, you are bound to be out of bounds part of the time.

For example, when companies become more interested in managing the stock rather than managing the business, it is easy to do what one could get away with rather than what is right for the business.

Don’t take time to think: These days, companies are flooded with data and it becomes easy to get lost in the details without taking time to think. Data are not necessarily information and can’t replace intuition.

Put all the faith in experts and outside consultants: Consultants are best equipped to advice on select matters, but when you have an entire company being run by consultants, it is a cause for concern.

Love your bureaucracy: Processes and segregation of duty are expected to help achieve efficiency.

But sometimes, too many processes and layers/silos within the organisation (especially common in large companies/MNCs) could stifle decision making.

Then you end up with a company working for the processes rather than the processes working for the company

Send mixed messages: This is the case where the leadership does not send clear messages to other stakeholders of the firm.

Such lack of clarity is usually early warning for losing focus.

Be afraid of the future: When caution becomes the over-riding way of work in a business, it can lead to failure.

The warning sign for over-cautiousness is when companies get into analysis paralysis without taking timely decisions. Sometimes any decision is better than none.

And the bonus Commandment…

Lose your passion for work — for life: For a company to go from good to great it needs passionate people driving it.

This can be best seen in immensely successful tech companies such as Apple, Facebook and Google — where the founders brought immense passion to work and helped shape the companies into what they are today.

It is easy for companies and its employees to lose the passion once the founder retires or the founding team moves on, unless a concerted effort is made to address the challenge.

‘Passion’ is probably the most easy to observe amongst all the attributes — because it shows!

(The author is business consultant. The views are personal. Feedback can be sent to perspective@thehindu.co.in)

(This article was published on May 11, 2013)
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