“If we don’t innovate…we’re toast.”

Innovation
In June the CEO of Commonwealth Bank said his business will be “toast” within a decade if it fails to successfully innovate, describing it as an “existential imperative”.

Ian Narev described some threats to business leaders at the free-market think-tank The Centre for Independent Studies and explained that whilst disruptive technologies such as peer-to-peer lending and bitcoin pose little threat in the short-term the threat will grow over a decade unless CBA innovates.

How long will your business last?

Many people I work with assume their business is an asset to pass on to their children – a legacy that will live beyond their own professional career. It’s a noble cause, provided the statistics are in your favour.

When the Boston Consulting Group examined the survival rates for publicly-listed businesses they discovered an average life span of only 35 years. Longevity is an unattainable goal in many cases. While there will be a large contingent that will stick around for a long time, there’s an equally sizable number that don’t get near the 35-year mark.

In fact, the same study also found that nearly a third of all businesses fail before reaching their fifth year of operation. The question, then, is what can leaders do to ensure their business survives for five, 35, 65 years and beyond?

Don’t shoot the messenger

Just as every mine once needed a canary, every leader needs a set of warning signs and signals they can trust which might alert them to danger. From measuring and analysing the numbers to being able to assess new threats and opportunities, leaders can’t afford to exist in their own bubble. Staff in the business know what’s going on, so CEOs need to trust and listen to the right people, and not shoot a messenger who delivers unwelcome news.

Sometimes the CEO will dismiss such people as simply being negative, forgetting that those working in the business can possess accurate insights into how the business is performing and what’s really going on at the ground level.

Avoiding the doom loop

To capitalise on new opportunities or make the leap to a new market, CEOs much prefer to have steady or rising profits. If revenues are dropping, it’s more difficult to summon the confidence needed to take the plunge. Courage dissipates with the fear of making a mistake that could worsen the situation. This is the “doom loop”, wherein profits are dropping and it becomes harder to invest in the strategies that will turn the ship around.

Will your business last longer than 35 years?

It’s a vicious cycle, and one that has a fair number of public examples. Newspapers are just one of many cases where advertising revenue decreased as savvy businesses turned to cheaper and more effective digital alternatives. Progressively, proprietors bought or built specialist websites but they were far too late to the party to prevent lasting damage.

The fact is, they were afraid to challenge their own business model in an era when that’s exactly what new market entrants were doing, essentially giving them a free pass to establish themselves. This resistance to change is a major influence on this doom loop, and makes it harder for leaders to reinvent themselves when they need to most.

Here’s another example. Ten years ago Google began providing free software which threatened Microsoft’s dominant Office range, traditionally sold in boxes. Microsoft responded by disrupting itself, firstly by providing free web-based applications of Word and Excel. These evolved successfully into Office 365 and then the Azure cloud platform.

How do you find courage in the face of risk?

Avoiding the doom loop through courageous decision-making is tough for business leaders. With risk or disruption on the horizon, it’s hard to dissuade people from hunkering down or maintaining the status quo. The differing fortunes of Kodak and Fuji should act as motivation for leaders that might be facing the challenge of the doom loop.

Both companies were disrupted but where one faltered, the other evolved and thrived. When challenged by the incoming wave of digital cameras, Fuji realised its technical competencies weren’t limited to photographic film, and it could actually use this expertise to diversify into other markets. It was a move that presented its own risk, but was it really any more dangerous than standing idly by? We only have to look to Kodak’s demise to find the answer.

Building a business that can survive for five, 10 or even 100 years is about looking to the future with courage. Leaders cannot be afraid of reinvention or of what the unknown might hold, especially as fearless start-ups seem to spring up by the day.


Graham JenkinsBy: TEC Chair, CEO mentor and coach Graham Jenkins