My Uncle was a bush pilot flying in Northern Ontario and Manitoba. One day, with a fully loaded plane and clear skies, he took off from the ice. Since it was early spring, the ice was starting to melt and he had a short runway. As he took off he got concerned about clearing some buildings, turned the plane, and, without enough airspeed, caused it to stall. From flying high one minute he was upside down in pieces on the ice the next. The same happens to companies – they stall just when they think they’re flying high!
Remember Nortel, the former darling of the telecom industry? In the 1990’s Nortel started riding a boom powered by its inventions in optical switching equipment. The growth was so phenomenal that at one point Nortel comprised a full third of the valuation of the Toronto Stock Exchange. As markets became saturated and the tech bubble burst, so did Nortel. When growth stalled it took less than two years for the stock to fall from 124 dollars per share to 47 cents.
Eventually all companies, even some of the most successful will hit a decline in growth. It’s not “if” growth will decline that’s important, it is how you prepare for it! The prognosis is poor for any company that fails to prepare.
Companies stall for a lot of different reasons but the one commonality is they all fail to fix what is clearly broken. At Nortel there was a total disregard of signals pointing to a core market that was obviously maturing. By resting on their laurels rather than developing a new business model, Nortel, like Blockbuster video and many others, rode their current business model to the ground!
High performing companies need managers who can grow and reinvent a business not just manage the old one! Andy Grove, former CEO at Intel, had it right when he said “Only the paranoid survive”! Intel, Cisco and others have clearly managed these market transitions that Nortel couldn’t. How do they do it?
- Renew capabilities: As the market evolves so, too, do the required competencies. Top performing companies aggressively seek new ways to bring additional value to the market. Nortel was a master at digital switching but couldn’t / didn’t make the transition when the market changed.
- Develop “serious” talent: Organizational needs are always changing as markets evolve. To better respond to these changes top performing companies maintain a steady commitment to developing “Critical” leadership talent through both education and challenging job assignments.
- Reinvent early: Develop new capabilities and talent BEFORE it becomes imperative. It’s when revenues are skyrocketing that the first signs of decline usually appear and the competitive landscape begins to change. Ignore these signs at your peril.
My Uncle survived his crash ……most companies don’t. They have less than a 10% chance of recovering from a market stall and 2/3 are either sold off or go into bankruptcy. Stalls are great for bathrooms but should be avoided in flight and prepared for in business.
For the full story see
Reinvest Your Business Before It’s Too Late, Paul Nunes Tim Breene HBR Jan Feb 2011