The Life Cycle of a Business

What happened to a billion dollar company that died over the last 70 years? What lessons are there to be learned for CEOs?

On Oct. 15 last year Sears Holdings, with revenues of $13.2 billion through October 31, 2018, losses of $1.7 billion, and 89,000 employees at the time, filed for bankruptcy. In reality, the company was ill for many years before its final passing.

What happened to Sears mirrors the classic life cycle of people and businesses from birth to death. However, this all too familiar pattern and the lessons to be learned from it seem to be lost on many.

Let’s review the similarities:

Youth & growth

Sears was the Amazon of its era with the first catalog containing almost everything a consumer could want and by 1981 Sears was the world’s largest retailer by revenue estimated to be worth $92 billion in today’s dollars. Sears domination of retailing reached its peak in 1969 when its sales were 1 percent of the entire U.S. economy and two-thirds of Americans shopped there in any given quarter. Half the nation’s households had a Sears credit card.

Arrogance & maturity

The universal mistakes that many company’s leaders make happen when CEOs feel that their dominant position in the marketplace is solidified indefinitely. The typical result of this feeling of hubris is that they take their eyes off the prize – the customer, competitors and change. In the case of Sears, as with other major brands that no longer exist, CEO succession is the root cause of the beginning of the end. This began at Sears when the legendary Robert E. Wood, who made Sears into what it was, decided to step down as CEO at 75.

Unfortunately, he had stayed on so long that his aging four successors were also out of step with the dynamics of their changing marketplace. Instead of looking outside for younger more competent talent the Board gave each one a shot that lasted about three years each and they in turn vainly and unsuccessfully tried to hold on to the aging model for success of earlier times.

During these 12 years, consumers were changing and embracing a new way of shopping at discount stores and in 1962 Walmart, Kmart and Target, all opened their doors for business. As you can imagine, Sears management dismissed these new competitors as inconsequential upstarts. However, by the mid 70’s Sears could no longer ignore these challenges, but even then insisted that their declining performance was the fault of the economy.

The beginning of the end

Sears entered the slippery slope to irrelevance when management decided to relegate their retail business to second class status and decided to enter financial services. It was a classic example of management taking their eye further off the ball just as Home Depot, Staples, Best Buy, Bed Bath and Beyond, and Amazon were beginning to steal their customers every day. Obviously, this was a disaster for Sears from which they never recovered.

Lessons

  • The hubris of arrogance. Success creates growth, which spawns bureaucracy, and subverts management’s ability to react to change.
  • The search for the blame for decline cause CEOs to grasp for “silver bullets” which lead to worthless reorganizations.
  • In the late stages of decline companies reach out to outsiders as saviors who rarely can arrest the inevitable.
  • The final stage is several years of declining life support sustained by poorly managed investments.

Embryonic, growth, maturity & aging: Sound familiar?

 

 

Share this post

Robert Donnelly

Robert M. Donnelly is an author, educator and brand builder for businesses and individuals. His consultancy business is called DoctorBusiness.com. His corporate life was spent in executive positions with IBM, Pfizer and EXXON and then as the CEO for several U.S. subsidiaries of foreign multinational firms. Professor Donnelly is on the faculty of Saint Peters University as well as Rushmore University, a global online university. His latest book is Personal Brand Planning for Life, available on Amazon. He also functions as an interim executive. You can contact him at rmdonnelly@aol.com or visit his website at DoctorBusiness.com.

No comments

Add yours