One of the benefits gained from over 40 years in the business world, with half that time as CEO of several large companies, is the ability to fall back on a vast body of entrepreneurial experience to guide my way through the thicket of an always unpredictable future.
Of course, the cost is old age, as years strip away a modicum of physical strength and endurance, and otherwise wizen our youthful figure, but we more than make up for those losses with precious accretions of wisdom and forebearance.
That’s why the multiplicity of economic and financial setbacks experienced in 2008 was not, in my opinion, any kind of surprise. Looking back, these events should have been seen coming as far back as 2001. If ever a year has affirmed some of the basic tenets of entrepreneurism, 2008 was it. And if we have learned nothing else this past year we should come away with these five lessons.
1. Resist peer pressure
Like lemmings into the sea, many leaders in the financial services industry were driven by avarice and stupidity to copy the ill-advised business models of their brethren. And what happened? They marched into a maelstrom of financial crises that wiped out trillions of dollars and threw many into bankruptcy.
As an entrepreneur, it is well to remember that just because other businesses in your industry cut corners, break rules and take unmanageable risks, keep your own counsel, manifest your own vision.
The answer to competitive pressure is not to copy, but to become more creative. Remember John Kenneth Galbraith’s view of “conventional wisdom”: “The conventional view,” he said, “serves to protect us from the painful job of thinking.”
Make it a point to think more often in 2009 about doing what you know is the right thing to do, not what others do and begin to give wings to your vision.
2. Never assume greater risks than you can prudently afford take
This is, of course, one of the cardinal rules of entrepreneurism that should comfortably extend into your personal life as well. In recent years we’ve witnessed myriad examples where greed has overpowered judicious risk-taking. And that’s a formula for disaster.
Risk taken without understanding the risk or taken out of greed is nothing short of gambling. True entrepreneurs are not gamblers. Contrary to the general perception, the true entrepreneur does not blindly accept risk, but does respect it. The entrepreneur seeks to understand and mitigate risk.
It is not the taking of risk that causes failure, it is the risk motivated by greed that leads to disaster. Few of us are immune from the siren call of success and money. There is nothing wrong with the desire for achievement, so long as we do not allow ourselves to be sucked into the vortex of wanton greed.
But remember that contrary to what Gordon Gekko (Michael Douglas), the fictitious corporate raider chronicled in the movie, Wall Street, greed does not come without egregious penalties. Shady business deals, the “good life”, fast money, and the selfish pursuit of material goods come at a steep cost. Just ask Bernard Madoff and some of the other Wall Streeters.
3. Don’t Shoot the Messenger
I have learned over the years of leading companies that if there does not seem to be any problems, it’s not because they don’t exist – it’s just that you don’t know what they are. Real leaders seek out the problems so they can be attacked and resolved.
The best leaders in U.S. business not only know how to handle bad news, but they actively seek it out-from employees, shareholders, customers, even family. They want to be told the hard, cold (yes, even brutal) facts. Poor leaders not only avoid hearing bad news, but they sometimes blame the deliverer, and 2008 has provided plenty of examples. At Lehman Brothers, for example, CEO Richard Fuld seemingly just couldn’t accept how hopeless his global financial services firm had become. It took a bankruptcy to clear his vision, and by then it was too late.
Leaders who hide from bad news are putting themselves, and their business, on the road to disaster. I’m hoping that in 2009, we will learn from the failure of others and be more anxious to hear the bad news sooner, rather that later.
4. Adversity Can be a Powerful Teacher
Say what you will, halcyon days allow mediocre business to survive. But as we have recently witnessed, sharp downturns reveal and magnify a business’s flaws. Accordingly, while no extrepreneur looks forward to a recessionary economy, the savvy business leader uses this crucial era to sharpen their business approach, and become more resilient to see them through tougher roads ahead.
Looking back on the business failures of the last year, we can see ample evidence of businesses that survived only because times were good.
• The U.S. auto industry has wasted years relying on business models that place low quality, gas-guzzling SUVs as the cornerstone of their future.
• The mortgage banking industry and a global cast of investors placed irrational faith on perennially rising housing values, and credit-bereft homeowners to pay for them. It was all a house of cards—and any truly thinking person should have known it.
The moral of 2008 is simple: Don’t be complacent. Know the risks being taken and how they can be mitigated. Always manage in order to survive the difficult times and the good times will take care of themselves.
5. The Power of Parallel
One of the pivotal thoughts of my books has been the crucial importance of building a business which is in “parallel” with all those it touches: management, line employees, investors, vendors, and customers. But this cardinal rule seems to have been lost by many businesses this past year. And it’s a great lesson for any entrepreneur to learn.
Were homeowners who got suckered into mortgages that couldn’t afford treated “in parallel”? Certainly not. Nor were executives who paid themselves outrageously huge bonuses in parallel with employees, stockholders and customers.
Rowan Williams, the archbishop of Canterbury, was recently interviewed by the BBC and he questioned many of the assumptions that business leaders and financiers have made over the past two decades. He criticized what he called, the “endless spiral of accumulating wealth, which has nothing much to do with producing anything.” I agree. “What’s in it for me”seem to be the motto of many businesses. And that sad fact is, this kind of selfishness is absolutely self-defeating.
Just remember that interests in conflict destroy, while interests in parallel create!
Hats Off to 2009
There is no queston that 2008 was a bummer. But America is resilient. The next few months are bound to be grim. We can anticipate even higher unemployment, bankruptcies, foreclosures, and uncertainty in our credit and stock markets. But a recognition and rediscovery of the honest entrepreneurial concepts that made American great still work and if implemented will mean better times will return.
The point is that all of us can learn from the past and those of us who do will lead the future. As we enter 2009 it would be good to remember the words of Cicero: “History is indeed the witness of the times, the light of truth.”
Happy New Year.