The most valuable business lessons come from facing up to the habits of mind and ways of thinking that repeatedly get us into trouble
There's a common phenomenon in business that I refer to as Groundhog Day syndrome. It has to do with the tendency of people to fall into self-destructive patterns of behavior even though they end up getting whacked in the head -- more or less like the character Bill Murray played in the movie Groundhog Day a few years back.
I know one guy, for example, who put together a successful clothing business and then started taking out huge amounts of cash to build a palace for himself and his wife. When he ran into business problems, he discovered he didn't have the resources to weather them. In the end, he lost both the company and the house.
So what did he do? He went out and started another clothing business, got it going, took out the cash, built another palace, ran into business problems, and lost both the company and the house. Two times in a row.
That's not as unusual as you might think. I know another guy who makes a habit of buying companies, raising tons of money from investors, and then paying himself so much in salary and perks that the company doesn't stand a chance. To be sure, he believes that each business is going to be wildly successful and that he deserves every penny he makes. But he always winds up where he started: broke. He's done that five times.
Or consider my friend Danny (not his real name). His downfall is leverage. He's great at starting companies and getting them up and running, but then he starts leveraging them like crazy so that he can chase after business opportunities. He'll do whatever is necessary to get the credit he needs -- even to the point of fooling around with his financial statements. Not that he intends to defraud anyone. He's just so focused on growing that he doesn't consider the possibility that things might go wrong. Of course, when you push things too far, they do go wrong. Sooner or later, Danny always lands in a pile of trouble.
Those cases may be somewhat extreme, but Groundhog Day syndrome is not a rare affliction. To some extent, we all have habits of mind and ways of thinking that repeatedly get us into trouble, and it's very difficult to change them. For one thing, we don't like to admit that we're the cause of our own problems. There are almost always other culprits around -- people who didn't do what we wanted or factors beyond our control. It's easier to blame them for our misfortune than to take responsibility for it, and so we let ourselves off the hook.
But we do ourselves a disservice in the process. The most valuable business lessons we can learn come from facing up to our weaknesses.
I'll give you the example of my greatest business failure -- the bankruptcy of my messenger business, in 1988. Starting from scratch, I had built Perfect Courier to $30 million in sales, making the Inc. 500 list of fastest-growing private companies three years in a row. Then I merged Perfect Courier with a public company, CitiPostal. The merged business landed on the Inc. 100 list of fastest-growing public companies in 1987.
But I wasn't satisfied. My dream was to have a $100-million company. So when a shortcut came along, I took it, merging with a $70-million company called Sky Courier in 1987.
Sky, it turned out, had problems -- big problems. For openers, it needed a quick injection of $5 million in cash. I decided to take the money out of Perfect Courier, which in itself wasn't necessarily a mistake. Even if Sky had folded and the investment had been lost, Perfect Courier would have been able to survive and keep growing at the same rate as before.
But I soon realized that the $5 million wasn't going to be enough. Sky needed $2 million more in cash, which I also decided to get from Perfect Courier. In addition, I subsequently agreed to pledge several million dollars of Perfect Courier's credit to keep Sky alive.
Those two moves were very serious mistakes. Why? Because they put my principal business in jeopardy. I knew that if I lost the second round of money, Perfect Courier would be hobbled. If we got into trouble with the credit guarantee on top of that, Perfect Courier might not be able to survive.
Through the agony of the layoffs, I developed a new understanding of the responsibility CEOs have for the lives of their employees. Out of that understanding came the cardinal rule I use in evaluating every important decision I make.
But despite the danger, I never even considered turning back. I didn't think I had to. I was sure I could handle whatever came along. I'd been in tough situations before. I thought I was invincible.
What I didn't take into account was the inevitability of unpredictable events. First came the stock-market crash of October 1987. Particularly hard hit were the financial printers with which Sky did a lot of business. Overnight it lost 50% of its sales.
Meanwhile, fax machines -- which had been around for 20 years -- suddenly reached a kind of critical mass, which had a devastating effect on the messenger business. Instead of sending documents by courier, more and more people were faxing them. Within a matter of months, Perfect Courier's business dropped by about 40%.
The combination of factors was overwhelming. In September 1988 my companies filed for protection from their creditors under Chapter 11 of the bankruptcy code. By the time we came out of Chapter 11, three years later, our workforce had shrunk from 3,000 people to about 50, and our sales from $120 million to a very shaky $2.5 million.
Believe me, that's culture shock. It took a few years before my head cleared enough for me to figure out what had really happened, and why.
The process took time partly because I had such good excuses. After all, who could ever have predicted that the stock-market crash and the fax machine would hit us at the same time? In my gut, however, I knew that blaming circumstances was a cop-out. The real question was, How had the company become so vulnerable to those developments?
It was extremely difficult for me to come to grips with the answer to that question. It meant admitting that the bankruptcy had a lot to do with my personality and decision-making process. Nevertheless, I eventually forced myself to acknowledge what I knew to be true. I'd taken a lovely, secure, profitable business and destroyed it. How? By exposing it to a level of risk it should never have faced.
I'd done it, moreover, because of something in my nature. I enjoy risk. I like to go to the edge of the cliff and look down. That's the personality trait behind my own Groundhog Day syndrome. This time circumstances had pushed me over the edge of the cliff, but in fact I shouldn't have been anywhere near the edge in the first place. I'd taken a foolish risk and put everything I owned in jeopardy. As a result, hundreds of people had lost their jobs, and many others -- including me -- had suffered through a nightmare.
Hard as it was to admit all that, the act of facing up to it proved to be one of the most liberating experiences of my entire business career. Not that I decided to change my personality. I knew I couldn't, and I really didn't want to anyway. Rather I began focusing on what I could do to avoid ever having to live through that Groundhog Day again.
I realized, for example, that I seldom heard the advice people gave me and often wound up ignoring good advice as a result. So I trained myself to listen more closely and make sure that I at least understood the advice I was getting, whether or not I chose to accept it.
I also made a point of seeking out the opinions of people whose judgment I respected but whose instincts differed from mine. And I came up with certain rules to force myself to think through the consequences of major decisions before making them. (See " Hurry Up and Wait," November 1998.)
Mainly, however, I adjusted my thinking about risk. Don't get me wrong. I'm as much of a risk taker as ever, but these days the risks I take are calculated ones. In particular, I calculate the danger that a decision of mine may cost other people their jobs.
That was without doubt the most important lesson I learned from the whole episode. Through the agony of the layoffs, I developed a new understanding of the awesome responsibility CEOs have for the lives of their employees.
Out of that understanding came the cardinal rule I use in evaluating every important decision I make: Always protect the pot. Once you have an ongoing, viable business, you have to put its welfare first and never do anything that would place it in jeopardy. It's all right to invest in a risky venture, provided your core business will be safe even if you lose the entire investment and some unexpected calamity comes along as well.
It's a rule I've followed scrupulously for more than 12 years now. My business has never been healthier, and I've never been happier.
Best of all, I can wake up every morning and know that it's not Groundhog Day.
Norm Brodsky is a veteran entrepreneur whose six businesses include a records-storage company and a delivery company. This column was co-authored by Bo Burlingham. Previous Street Smarts columns are available online at www.inc.com/incmagazine/columns/streetsmarts.
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NORM BRODSKY | Columnist
Street Smarts columnist and senior contributing editor Norm Brodsky is a veteran entrepreneur who has founded and expanded six businesses.