Successful companies must not be complacent

Successful businesses may find themselves losing ground because, they get stuck in their moment of glory and forget about what matters the most – the customer.

People who start businesses are notorious for their optimism. But most entrepreneurial ideas never pass from dream to reality. And when they do, the great majority of new companies fail.

There are filters through which an idea must pass to become a business, then through which a business must pass to become sustainable, then through which sustainable business must pass to become something special, and then through which that something special must pass to become great. The tests are severe.

For that rare company that passes all of these tests, history appears to freeze in its tracks. The end point has been reached, the answer is now known. Yet history teaches that the wheel keeps turning. Bad things do happen to good companies. Great firms and companies with the smartest executives and the most powerful competitive advantages persist in the mistakes of their predecessors and bad things set in. History offers three reasons.

The market abandons the firm: When Henry Ford introduced the Model T in 1908, his goal was to put America on wheels; and he succeeded. Prior to the Model T, automobile manufacturers produced short runs of high priced high margin vehicles. But Ford was committed to the mass market. He produced a reliable appliance within the financial reach of a far larger market than any of his competitors.

By 1921 the Model T held a commanding share of the US market in a product category in which in a product scale economies and the learning curve make market leadership critical. Within less than a decade Ford lost the leadership his company was never to regain. Why?

Because, the market left the firm. The US was growing fast and getting richer in the 1920s. Radio, movies and sports were changing the way the post World War I generation looked at the world. Life was to be enjoyed not just endured.

Suddenly consumers wanted more from their automobiles – style fashion, color, and choice. But Henry, enraptures by tales of his own greatness, fell in love with his product and forgot about his customers. In 1908, he was inspired by his vision of Americans freed from the tyranny of distance. By 1927, he was merely making more Model T’s. As a result, he lost control forever of a market he owned.

The firm abandons the market: Counter intuitive though this is, it happens more often than you might think. Take the case of Sears, Roebuck &Co for years the most trusted firm in the US. It was an honest, reliable outfit that stood by its washing machines, refrigerators and automobile batteries.

Sears enjoyed several competitive advantages: hundreds of thousands of devoted employees whose current income and retirement security depended upon its prosperity, millions of loyal customers, made the best store locations in the nations.

So impressed were Sears executive with their greatness that in 1970 they started creating what at the time was the tallest building in the world. Chicago’s Sears Tower, completed in 1973, was limited in height not by ambition or conspicuous display but by the Federal Aviation administration.

Beware of big buildings like the Sears Tower. Such monuments often become mausoleums. In its heyday Sears Tower had gorgeous and expensive furniture and paintings – they did not look like they were bought at Sears. Sears had begun to put on airs.

The firm was leaving its market. Sears had a lock on a segment that will exist forever: people who want the bet for less. How do we know this market still exists? Because Wal – Mart moved into the void that Sears left. Sears turned its back on one of the most vibrant market in history.