What word would you identify with in 2021?

What is one word that would serve you as a driver for the entire 2021 year?

David McCullough’s book, 1776, (McCullough, David.  Simon & Schuster.  2005) has an interesting story. Joseph Reed wrote George Washington on December 22, 1776.  “It was time something was done, something aggressive and surprising, Reed wrote.  Even failure would be preferable to doing nothing (p 271).”  The story goes on and describes victory, but it comes with planning,  great risk, cold, wet, storms, army poorly supplied, delays, progress made, plan goes out the window because of events that were out of Washington’s control.  After an all-night march, there is a battle, gunfire, cannon fire, suffering, loss of life, but in the end – victory, momentum.  After this event, 6 ½ years more war.

The year 1776 was a horrible first year in the Revolutionary War.  The word then is maybe – determination.  Washington refused to see that the British had won (pp 271 – 285).

My word is clearly displayed and I see it constantly – action.

 

What is yours?  Would you share?

Real Time (to September 2020), Companies’ Compass Heading – GROWTH

Business Strategists, Executive Directors, Finance Specialists, C-Level, VP’s, Sales, Partners, BOD, Owners – all employees.  Who doesn’t want a growth track?  Is your company in growth mode?  What does growth look like?  What are the factors of growth for your company?  What is a reasonable growth rate for revenues, profits, cash flows?  What are the implications for your business based on your answers?

This is all about your existing business, it is paying the bills for now and what’s next.  Therefore, it must continue to grow, continuous improvements, innovation, it is all a requirement.  The implications for all this are profound.

Let’s examine growth based on my research.  There are two separate markets that growth occurs in – market dominance and a competitive market.  Research that continues leads me to accept that one company could operate in both.  PAUSE – you decide, what market is your company in?  How do you decide?  What are the characteristics?  Knowing which one and what are the implications?  Is your company’s 2020 year a roller coaster year?  How difficult is it to see to the end of December 2020?  The 2020 year is not as clear a journey as a 2020 view would suggest.  Consumer buying is shifting, discretionary spending patterns are changing, priorities are different, companies are reducing cap-ex and operating costs.  This is attributable to COVID-19 and now add politics, election year.  Uncertainty has been around a long time but it appears on steroids now.  As a result of the uncertainty in US and Global Economies, many corporations no longer publish guidance for the balance of 2020.  The stock market swings are significant in September and affecting some of the companies included in this growth analysis.  The impact on business for the short-term and long-term is unprecedented and unpredictable.  You should be fully aware of your company’s compass heading.  The table below shows results for some of the companies included in this blog.  All information is from the company’s annual report.

With this in mind, let’s examine Market Dominance.  This particular growth model has specific characteristics.  These characteristics would be the ability to set your price, maintain strong margins and generate positive cash flows. In addition, Peter Thiel’s outlines 4 concepts:

    • Proprietary Technology
    • Network Effects
    • Economy of Scale
    • Branding

These were mentioned and detailed in my previous blog, “What direction is your company’s COMPASS pointing – Growth or Decline?”  At Innovation Advantage, I believe that this is the place to begin to understand your company’s macro view (check out our website for more details at https://innovationadvantagellc.com/).  The implications of this are significant – it impacts the company’s overall strategy.

Growth is a moving target.  These are unprecedented times. Product life cycle tests are imperative with consumer and business requirements shifting, your product/service that was once in demand may drop like a rock in water.  If no longer needed or greatly reduced, what are you going to replace it with it?  How will your company make it up?  What are consumer’s priorities shifting to?  Implications need an answer.  Bezos even highlighted in Amazon Annual Report 2019, the growing competition in the e-commerce space which Amazon has dominated now for years is threatened more and more.

My research adds an additional one in market dominance space.  A corporation required 25% of revenues to be from new products over the past 3 years.  Originally, it started out at 5 years.  How would that measure up in your company?  Would you meet that requirement or not?  If you did, how would it change your business, its financial results?

Let’s examine some examples of companies considered in a market dominant position.  These companies were some of the highest rated in 2019 Drucker Institute Survey for financial strength and innovation (https://www.drucker.institute/programs/company-rankings/).  You may want to gather your financial information for 2019, 2018, 2017.

Based on my research the following companies are listed as having a market dominant position.  This recognition is based on the points made so far.

    • Amazon – CEO appeared
    • Microsoft
    • Apple – CEO appeared
    • Facebook – CEO appeared
    • IBM
    • Alphabet – CEO appeared

So much as a dominant position, nearly monopoly that on July 29, 2020 four CEO’s appeared virtually before a Congressional Hearing on antitrust concerns.  I am not qualified to comment as an antitrust anything but these companies certainly appear to have a dominant market position.  However, other companies are challenging them.  The other factor to identify as a dominant position – is 25% of revenues from products or services introduced over the past 3 years, this information is not publically available.  They certainly check the boxes for proprietary technology, network effect, economy of scale, branding.  What do you see in your numbers?  Are revenues growing, are 25% of revenues from products introduced in the past 3 years, margins improving or net income up?  Can you check the boxes for proprietary technology, network effect, economy of scale and branding?

It is not just these companies that are in a market dominant position.  A list from (https://iot-analytics.com/the-leading-industry-4-0-companies-2019/) shows a potential list of companies who could develop into a market dominant position.  They are:

    • Hosting – Microsoft, already shown
    • Industrial IoT Platforms – Microsoft, GE, PTC, Siemens
    • Analytics – Uptake
    • Microchips – Nvidia
    • Sensors – Festo
    • Connectivity Hardware – HMS
    • Cybersecurity – Claroty
    • System Integrators – Accenture
    • Additive Manufacturing – GE
    • Augmented and Virtual Reality – Upskill
    • Collaborative Robots – ABB
    • Connected Machine Vision – Cognex
    • Drones/UAVs – PINC
    • Self-Driving (material transport) Vehicles – Clearpath Robotics

A factor for growth (as well as decline) is time.  Time will show the success of these companies in their pursuits.

Let’s examine the competitive market examples.  My research discovered some characteristics of competitive markets and companies in them.  Characteristics included revenues flattening or declining, margins falling over time, cash flow declines, market share could be declining, no differentiation in products.  As market share drops due to other competitors developing products or your products decline in meeting customers’ requirements, then, companies lower its price, sacrifice margin.  Peter Thiel expressed, if your company is in this space – find something to improve over other companies by a factor of 10 (innovate), leverage it and reap a stronger position. Thiel developed a business model in the early stages of electronic payments, improving the process by a factor of 10.  The result was PayPal. Amazon started with selling books, expanded the books available and improved what the competitors offered.

The automotive industry is in a competitive market.  Technology advancements in the automotive industry abound since Henry Ford.  Technology advances are a big part of the auto industry now.  Advertisements are all about the technology built into every model.  Tesla introduced new technology beginning in 2003.  Elon Musk invested in the start-up and served as chairman beginning in 2004.  In 2008, Tesla released it first car, completely electric.  In 2010, Tesla had an IPO.  The history of this company is controversial and performance lacks profits.

Tesla stock price fluctuates to position it at times more valuable than other manufacturers.  Will Tesla continue to be successful in this competitive market, achieving greater results than other automotive manufacturers?  Will Tesla differentiate itself from the pack?  Time will tell.  Tesla’s Q2 2020 shows a profit.  Tesla continues to pursue its automotive product in a competitive market and delivered an electric car that improves over its competition.  What other electric car is discussed in the automotive industry? Is your company in a competitive market, how are you going to differentiate?

Airlines represent another competitive market group with little differentiation between all airline companies.  The profitability is limited, stock performance fluctuates and now with COVID-19, airlines are suffering with existence decisions.  Recently, all airlines ended the practice of charging for changes in flights (in 2019- $2.8 billion).  Southwest never charged passengers if they changed their flight schedule.  Are there any secrets out there for an airline to discover that could differentiate it from the pack?  Are they looking?

It is essential for your existing business to continue to grow revenues, profits, cash flows, improve through purpose driven change in order for it to thrive and support what’s next.  What’s next should increase the company’s durability in either their market dominant or competitive environment it now operates.  What’s next comes about by innovation (find secrets, see my blog on this), it is the advantage companies have.

Your company in its dominant market position, its compass firmly pointing toward growth, will be challenged.  Amazon has led the e-commerce economy for years and it continues to expand, grow, improve. Yet, Jeff Bezos in May 2018 stated one day, Amazon could go bankrupt, fail (https://www.investopedia.com/news/why-jeff-bezos-saying-amazon-will-ultimately-fail/).  A continuing pursuit of excellence, maintain the market dominance position with strategy, proprietary technology, network effect, economy of scale, branding, identify and remove barriers and pursue excellence is essential.

Your company in its competitive environment can lead or even shift to a stronger position or differentiate itself from the pack by improving a slice of the business above the others.  Is your company #1 or #2 in your competitive market?  If not, evaluate your position, identify and remove the barriers, understand the gap of where you are and where you need to be, begin the journey to close the gap and differentiate your company from the rest.  It can be done as demonstrated by other leaders before you.

What will your company’s response be to these unprecedented times, challenges, business climate?  Your individual company’s circumstances are unique yet require a constant approach for excellence in your existing business to achieve durability.  Whether your company’s compass heading is pointing toward growth in a market dominant position or competitive market, excellence is imperative, innovation is essential or your compass can point into another direction, away from growth.

Innovation Advantage is looking to continue its research and is looking for sponsors to allow us to facilitate this important first step, Compass Heading, in our discovery process.  Contact us.

Enjoy the journey.

All Figures are in millions except Diluted EPS and from annual reports.

Amazon

YR 2019

YR 2018

YR 2017

Revenue

$281

$233

$178

Operating Income

$15

$12

$4

% Opr Income

5.3%

5.2%

2.2%

Net Income

12

10

3

% Net Income

4.3%

4.3%

1.7%

Diluted EPS

$23.01

$20.14

$6.15

Net Cash

$39

$31

$18

Microsoft
Revenue

$126

$110

$96

Operating Income

$43

$35

$29

% Opr Income

34.1%

31.8%

30.2%

Net Income

$39

$16

$26

% Net Income

31.0%

14.5%

27.1%

Diluted EPS

$5.06

$2.13

$3.25

Net Cash

$11

$12

$8

Apple
Revenue

$260

$266

$229

Operating Income

$64

$71

$61

% Opr Income

24.6%

26.7%

26.6%

Net Income

$55

$60

$48

% Net Income

21.2%

22.6%

21.0%

Diluted EPS

$11.89

$11.91

$9.21

Net Cash

$50

$26

$20

FaceBook
Revenue

$71

$56

$41

Operating Income

$24

$25

$20

% Opr Income

33.8%

44.6%

48.8%

Net Income

$18

$22

$16

% Net Income

25.4%

39.3%

39.0%

Diluted EPS

$6.43

$7.57

$5.39

Net Cash

$21

$15

$17

IBM
Revenue

$77

$80

$79

Operating Income

$10

$11

$11

% Opr Income

13.0%

13.8%

13.9%

Net Income

$9

$9

$6

% Net Income

11.7%

11.3%

7.6%

Diluted EPS

$10.63

$9.57

$6.17

Net Cash

$8

$12

$12

Alphabet
Revenue

$162

$137

$111

Operating Income

$34

$28

$26

% Opr Income

21.0%

20.4%

23.4%

Net Income

$34

$31

$13

% Net Income

21.0%

22.6%

11.7%

Diluted EPS

$49.16

$43.70

$18.00

Net Cash

$19

$17

$11

Tesla
Revenue

$25

$21

$12

Operating Income

($69)

($388)

($1,632)

% Opr Income

(0.3%)

(1.9%)

(13.6%)

Net Income

($862)

($976)

($1,962)

% Net Income

(3.5%)

(4.6%)

(16.4%)

Diluted EPS

($4.92)

($5.72)

($11.83)

Net Cash

$7

$4

$4

United Airlines
Revenue

$43

$41

$38

Operating Income

$4

$3

$4

% Opr Income

9.3%

7.3%

10.5%

Net Income

$3

$2

$2

% Net Income

7.0%

4.9%

5.3%

Diluted EPS

$11.58

$7.67

$7.06

Net Cash

$3

$2

$2

American Airlines
Revenue

$46

$45

$43

Operating Income

$3

$3

$4

% Opr Income

6.5%

6.7%

9.3%

Net Income

$2

$1

$1

% Net Income

4.3%

2.2%

2.3%

Diluted EPS

$3.79

$3.03

$2.61

Net Cash – – –
Delta
Revenue

$47

$44

$41

Operating Income

$7

$5

$6

% Opr Income

14.9%

11.4%

14.6%

Net Income

$5

$4

$3

% Net Income

10.6%

9.1%

7.3%

Diluted EPS

$7.30

$5.67

$4.43

Net Cash

$4

$3

$2

Southwest
Revenue

$22

$22

$21

Operating Income

$3

$3

$3

% Opr Income

13.6%

13.6%

14.3%

Net Income

$2

$2

$3

% Net Income

9.1%

9.1%

14.3%

Diluted EPS

$4.27

$4.24

–
Net Cash

$3

$2

$1

Real time (to August 6, 2020) Company’s Compass Heading – Decline

Executive Directors, VP, CEO’s, Partners, BOD, Business Owners, Employees, why is it important to know the company’s COMPASS HEADING?  There is risk regardless of the direction. I invite you to read the following and let’s learn from them.  This summary presents recent results, decision, impact for a company falling through decline.  The outlook for its employees, investors and communities is not good.  This determination is based solely on public information and not any internal reports or documents.  Internal reports and documents provides another perspective into the company’s overall health.  Several attempts were made over the past year to contact the leadership in an attempt for them to sponsor research into their compass heading, but to no avail.  However, public information is most likely enough because Wall Street is not supportive as the stock price continues its decline.  From the highest stock price in 2014 to August 6, 2020, the drop is at 93%.

I followed this company for nearly 18 months – public financial information, news releases, analysts.  I loaded all the information into the Compass Model that my previous blog explained to determine what direction the compass was pointing.  Why is it important to know?  There is risk regardless of the direction.  This company’s heading is decline.  At what stage, I expected at least Stage 4 based on Jim Collins’ Five Stages of Decline.  The company is most likely now at Stage 5.  Here are some facts on the company which could demonstrate problems and implications of them on the company’s future.

Year-to-Date 2020

  • Q1 losses at $19 million
  • Q2 losses at $ 38 million
  • Stock down 7% to 10% to August 6, 2020
  • Cash on hand projected to run out before the end of the year
  • Announced plans to close plants, layoffs, product reduction
  • Attributed most recent results to COVID-19

Years 2016 to 2019

  • Revenues at $ 2.5 billion
  • Losses at $ 141 million
  • SG&A, R&D Expenses at $ 1.4 billion
  • Stock ended 2019 – 75% down for past 6 years

Years 2004 to 2019

  • Accumulated Revenue $ 6 billion
  • Accumulated Losses $ 684 million
  • Acquisitions made 2013 to 2015 value $ 600 million plus stock
  • Impairment charge $ 540 million
  • R&D Expense $ 700 million
  • One interim CEO in past 16 years had a year of profit, his only year as CEO.  All other CEO’s had accumulated losses over their tenure
  • 6 CFO’s over 10 years
  • 10 Senior Executives over 10-year period
  • Company expanded products, services, plants, domestic and international

All the results point to a company in the final stage of decline.  Model was proven in research of other companies in decline.  The options for leadership with limited cash and in the  final stage is most likely two – capitulate or hang on until irrelevant/disappear.

Leaders, employees what direction is your compass pointing is one of the most important things to know because, there is risk for all employees, stockholders and communities.   I will continue to monitor their future.

All the best, get started and know – growth or decline.  Clock is ticking.

What direction is your company’s COMPASS pointing – Growth or Decline? Do you know? Is it important for you to know? How can you know?

With some investigation, you may be able to get some idea.  It begins with the numbers for the past 15 years or longer, because Jim Collins, author, consultant, pointed out a company’s direction can develop over many years.  You will identify indications of what direction through the numbers.  A list of suggestions is:

Balance Sheet – details preferred Income Statement – details preferred
GM by product Revenues – details preferred
Overall profit – details preferred Ratios
Debt – for what, what value created Cash flow, cash-on-hand
Patents filed, held, expired past 3 years Patents turned into revenue generating
Results of acquisition(s) investment, debt associated, integration cost, contribution of acquisition to income statement, what value did it provide, any impairment write-offs. Did acquisition help make your company the best in your market or industry?

Y or N?

What innovations have or are developing, what proposed or actual value created?

Did innovation help your company become the best in your space? Y or N?

What is your company’s history with innovation, commercialization, products/services adding value

In any economic climate, knowing growth or decline is required.  When you reach an understanding (numbers based), of what direction your company’s COMPASS is pointing, then what?  I suggest that you investigate either the growth or decline elements, develop information, summaries, insight and develop a case study for your business.  Numbers are important but context around the numbers are necessary – it tells a story.  Important to note, make sure you align the words with the numbers.  Both need to reflect the same story.  The following scenarios for growth and decline are a Cliff Notes Version.  You could go to the books for all the details – Thiel’s book, Zero to One and Collins’ book, How The Mighty Fall.

GROWTH

According to Thiel, a strong factor for growth is creating a “legal monopoly.”   How does a company rise up to create a “legal monopoly?” Peter Thiel suggested 4 things to improve your opportunity for growth in Zero to One.

PROPRIETARY TECHNOLOGY – according to Thiel, this is the “substantive advantage.”  To achieve this, Thiel described the following:

  • Proprietary Technology needs to be 10 times better than the nearest offering in a significant way.
  • Create something new because there is no second
  • Radically improve an existing technology by a factor of 10.  (This may be the easiest way)
  • Achieve 10 times improvement by “superior integrated design.”

Examples of companies included: PayPal, Amazon and Apple.  Does your company have such a proprietary technology?  Y or N? Is there opportunity in your market?  Y or N?  Are you looking?  Y or N?

NETWORK EFFECTS – “makes product more useful as more people use it.”  Historically, this develops from a small footprint to begin and spreads.  Facebook was cited by Thiel as an example.  I suggest FedEx and UPS, both developed a network and took business away from USPS.   Does your company have such a network? Y or N?  What examples of companies would you put here? A client had an excellent global network. A colleague and I developed an approach for more to use the network.  Client chose instead to reorganize.  Reorganization is a factor in decline mode and will be discussed later.

ECONOMIES OF SCALE – “monopoly company gets stronger as it gets bigger.” Is your company getting stronger as it gets bigger? Y or N? What examples of companies would you put here?

BRANDING – “a company has a monopoly on its own brand.” Consider the brands, who comes to mind?  Do they have much challenge to their brand?  Y or N?

The answers to these questions won’t guarantee that your company is in a growth mode. BTW, with the branding question, was your own company in the list?

The team with Thiel at PayPal where this model developed: Elon Musk founded SpaceX and co-founded Tesla; Reid Hoffman co-founded LinkedIn; Steve Chen, Chad Hurley and Jawed Karim founded YouTube; Jeremy Stoppelman and Russel Simmons founded Yelp.  No guarantee but this group experiences success.

Numbers (credible, accurate), if trends are up through the years, it could indicate a growth mode.  Physically, we can live every day and appear healthy.  This is why we go get physicals, lab work, specific tests to see if there is an underlying disease developing that could affect our health long-term.  So, conduct a Growth analysis, to see if you conclude a growth trend.  If not growth then, conduct a Decline trend analysis.

DECLINE

From the numbers, if trends are flat or in decline, this is certainly a more urgent study.  Collins pointed out 5 stages of decline.  At Stage 5, no company ever reversed course in his study.  The company became irrelevant or cease operations or lost their identity.

Like growth analysis, it all begins with the numbers.  Identify clearly why you concluded that decline is your company’s COMPASS direction. It is essential to assess at what stage of decline your company is in.

Here is the list of 11 companies that were the basis for How The Mighty Fall published in 2009.  The basis for this book is extensive, 70 years of corporate documents, cumulative of 6,000 years of combined history, 60 corporations with a narrowed list of 11.

A&P Addressograph
Ames Department Stores Bank of America (before acquired by Nations Bank)
Circuit City Hewlett-Packard
Merck Motorola
Rubbermaid Scott Paper
Zenith  

According to Collins, companies do go through each stage of decline.  However, the length in each stage varies.  This is important to grasp and identify at what stage of decline you are in.  If your decline is in Stages 1 to 4, don’t despair, your company can turn it around.  Collins also listed companies whose compass pointed to decline, however, they recovered.  Leaders turned the direction around and the company emerged stronger and viable.

Nucor Xerox
Nordstrom Texas Instruments
Disney Pitney Bowes
IBM Nordstrom
Boeing  

Now, 11 years later from published book date, some of these companies are back into decline mode.  Then, as now, Collins reminds readers, decline is largely self-inflicted and recovery largely within our own control.

The Five Stages of Decline

“Stage 1 – Hubris Born of Success “

The description for this stage, “company success will continue almost no matter what the organization decides to do or not do.”  Leaders neglect the primary business for something else.  Company example is Circuit City. The timeline for this fall, October 1995, Circuit City is a high flyer, accolades are flowing in, started up CarMax and Divx. The leader’s arrogance and neglect for the primary business, resulted in profit margins eroding and ROE declined.  November 10, 2008, Circuit City filed for bankruptcy.  Circuit City declined through all five stages in 13 years.  Identify what if anything applies to your company.

“Stage 2 – Undisciplined Pursuit of More”

Collins described this stage with these symptoms (not a complete list, pages 48, 49, 63, 64).

“Unsustainable quest for growth, confuse big with great, success creates pressure for more growth, strains people, culture and could begin to fray edges. Declining proportion of right people in right seats.  Bureaucracy subverts discipline, system of bureaucratic rules subverts responsibility; people think in terms of job rather than responsibility.  Personal interests placed above organization’s interests.”

Company examples from Collins’ book include: Ames Department Stores, Rubbermaid, Merck and Bank of America (before NationsBank acquired).  Rubbermaid as a highlight is of particular interest because I lived near the HQ, participated in a NFP Group and interacted at the HQ during the mid-80’s.  What happened to Rubbermaid in Stage 2, it progressed through Stages 3, 4 and 5.

In 1994, the CEO declared a “leap growth” program by any and all means.  Fortune declared Rubbermaid #1 Most Admired Company in America, more innovation than 3M, Apple and Intel.  Collins wrote in his book, 1994 to 1998, “Rubbermaid raced through the stages of decline so rapidly that it should terrify anyone who has enjoyed a burst of success.”  Rubbermaid then cut products, 9 plants, 1,170 jobs, made a large acquisition, recast incentive compensation and installed radical marketing.  Rubbermaid restructured again in less than 2 years.  Then, October 21, 1998 it was sold to Newell Corporation. Identify what, if anything applies to your company.

“Stage 3 – Denial of Risk and Peril”

Collins’ partial list for this stage is: “big bets and bold goals without empirical validation. Externalizing blame – blame external factors rather than accept responsibility (COVID-19 anyone). Obsessive reorganizations.”

Company examples from Collins, How The Mighty Fall include: Motorola, NASA & Morton Thiokol, IBM, Scott Paper and Zenith. With all the recent demands on TP, let’s single out Scott Paper.

Collins explained that by 1961, Scott Paper built a successful consumer products company.  Then, enter P&G into the market that already included Kimberly-Clark and Georgia Pacific.  The decade of 1961 to 1971, Scott’s market share went from about 50% to about 33%.  P&G in 1971 went national with its Charmin product and Scott’s response was a reorganization – move the chairs in the room and without a strong strategic response for 5 years.  Reorganization continued 3 times over 4 years.  Scott Paper moved out of Stage 3 into Stage 4. Eventually, Kimberly-Clark purchased Scott Paper for $9.4 Billion on December 12, 1995.

“Stage 4 – Grasping for Salvation”

Collins’ partial list for this stage includes: “series of silver bullets – make dramatic moves, acquisition, exciting innovation to have a breakthrough, do this repeatedly from 1 to another – no consistency. Grasping for Leader as Savior.  Initial upswing followed by disappointment.”  This refers to initial actions that deliver short-term results.  However, improvements quickly disappear.  “Chronic restructuring and erosion of financial strength.  Panic and haste – rather than calm, deliberate, disciplined, people are reactive, hasty, undisciplined.”

Company examples from Collins,’ How The Mighty Fall, include: HP, IBM, Circuit City, Scott Paper, Ames Department Stores, Motorola, TI. Let’s look at one example in the Stage 4 Chapter, HP.

HP Board hired a new CEO in July 1999.  CEO approach included media coverage of planned restart with excitement, enthusiasm of new strategies.  Initial 12-month results for the new CEO, 7% Return on Sales, 2002 HP first recorded annual loss, 2005 Return on Sales at 4%.  In 2002 HP Board continued with Stage 4 behavior with $24 Billion acquisition of Compaq Computer, as the silver bullet to fix HP.  CEO hired in July 1999. Board fired in February 2005.

“Stage 5 – Capitulation to Irrelevance or Death”

At this point in the Decline Journey, Collins pointed out these: “lack of cash, increased debt.”  He also stated that the company is possibly facing two options.  “Leaders capitulate rather than fight or leaders continue struggle, run out of options, enterprise dies completely or shrinks into irrelevance.”

Collins reviewed two companies in this stage, Scott Paper and Zenith.  He demonstrated Zenith’s decline through all 5 stages.  Here is a summary.

  • Stage 1 – 1950 to 1965 success run.  The Japanese television hits the market.  Zenith ignored the Japanese products.
  • Stage 2 – Zenith 1960’s to early 1070’s goal – pursued #1 Status in their market, but it required increased investment (debt) in manufacturing capacity.  Transition of new CEO experienced difficulty, brought in outside executive to be new CEO.
  • Stage 3 – Zenith, blames outside issues for results rather than management decisions. Decisions made during Stages 1 and 2 resulted in lower prices to hold market share, more debt and impact on ratios.
  • Stage 4 – Reaction of leadership was to try everything and one pursuit demonstrated promising results, Data Systems.  Zenith became the #2 producer of IBM-compatible PC’s over a 10-year period.  It was too late, debt increased, cash-on-hand dropped. The Zenith’s story in the end – 5 CEO’s in ten years, bankruptcy, and came out with 400 employees down from 36,000 in 1988.
  • Stage 5 – In 1999, Zenith became a wholly owned subsidiary of LG Electronics.

You know this, corporations (for profit or NFP) are complex, their market/industry is complex, supply chain is global, digital economy, e-commerce, technology and new dimensions are developing.

Understanding your company’s COMPASS direction is important to YOU.  Why? You read how Collins described a company’s decline can drop through all 5 stages in 5 years.

I attempted to give you enough information to determine which direction and develop a story for context.  The examples from this book are dated.  However, the principles to me remain.  An observation of the current business climate recognizes the corporations in growth mode and aligned with Thiel’s description – AAPL, AMZN, MSFT, there are more.  Those in decline mode and aligned with Collins’ 5 stages of decline.  Boeing is struggling but may yet turn it around, to me they certainly had Stage 1 characteristics of decline.  Corporations in retail space, those who ignored e-commerce and filed bankruptcy protection or now ceased operations.

Enjoy your journey and all the best.