The Evolution, Rise, Decline, and Failure of a Corporation.

Lawrence H. Sikes Sr.

At the beginning of every business is the Idea. It is the spark usually in the mind of one or two people that will launch a new business. In most cases the business fails within the first five years. This study is concerned with the Evolution of the businesses that don’t fail in this initial period and the pointing out of the pitfalls that will eventually destroy 90% of those businesses that survive this initial startup period.

It is the intent of this study to point out those paths that doom almost every business that is started in this country. The reader may in many cases dismiss out of hand the concepts presented here or take them as intended. If you read this study and immediately dismiss the concepts then I will bet that your business is at no less than stage 5, this usually means that your business is well on it’s way to decline and failure. If you read this study and outwardly disagree with the concepts but can admit to yourself that you can see some of the things pointed out here occurring in your business there may be hope.

As a final word before you start I would like to make it clear to you that I don’t care if you succeed or fail. I wrote this paper based on what I have observed while working at various corporations, and in my on businesses both successes and failures over the last 30 years. I only point out what I have observed, sit back, and smile as I watch your reaction.

Stage 1. Starting out.

Companies are born of necessity. This may be your necessity to eat, move to a higher level, or perhaps out of the frustration of being involved in a Stage 5 - 8 business. Usually you have identified a need that you can fill and be rewarded for, thought long and hard on it, and finally got off your duff and taken the step into the void of insecurity, starting a business. Once you have made the first step you discover that this is hard work. You will put in long days, weekends, and forget what a vacation is. You will discover creative accounting as you try to pay bills, pay yourself, and explain to your spouse that it will all be better in five or ten years. You will give up sleep since most nights are filled with the worry of just how you are going to get through one more month with out loosing the house, the car, and all self respect.

Well, assuming that the company can survive the first eighteen months and you still have a home and family we can probably see the business begin to become self supporting. If not you should rethink the initial concept and make a hard decision on whether to continue or to go back and see if your old job is still there.

For our purpose we will go on the premises that you have survived and are actually going to make it. Let’s look at what has happened, you are still small, less than 10 people in the company, and you are not in debt. You and your associates still work long days and most weekends. There is a thrill in seeing each new widget ship. You may even be planning to take a long weekend and take the spouse to the mountains or beach or wherever.

A point of interest at this time, look at the makeup of your company. Note that almost everyone involved is a resource producer.

Stage 2. Lean and Mean.

Let’s look at how you have gotten to this point. You did not spend funds that you did not have or at least have a commitment for. You did not become impressed with your self. You did not change your mind each time an external influence provided you with a road block. You did not give up when things got tough. You did not give in to the temptation to walk away from this monster. You did not loose sight of you initial reason for starting this business. Most important of all is the loyalty of the people who you have surrounded yourself with. Never mistake the value of the file clerk who has never failed to find that missing folder just in the nick of time.

Look at your company. You will notice that the majority of your employees contribute directly to resource generation and very few if any are purely a resource drain. If you note that the resource consumption segment of your business is growing as fast or faster than the resource production segment you may be on the accelerated path to stages 5 - 8.

In the mid 60’s when I entered the work force I took an entry level job in the Bell System. One of the major things I noticed when I started working was that every employee in the Switching Office I started in was competent in virtually every aspect of the running and maintenance of the Switching Office. When I left the Bell System in the mid 80’s this was no longer the way buisness was done. You were lucky if you could find anyone who had a clear concept of how a telephone call got from your house to the house of the person you were calling, but they were specialist in some small component of the call and the other components were 'not my job'. In your company you probably have the people who have total knowledge of your product at this stage, do you think they will still have the same level of knowledge in 5 or 10 years? Do you think they will still be with you? Have you ever heard an employee say "that ain’t my job"?

Stage 3. Hey Look at us.

Well at this point you have recognized your success. You have begun to lean back and let others guide your company. You have hired people to do the things that you don’t want to keep doing yourself.

This is actually the first stage at which companies begin to fail. It is at this time that we start personnel department. This is the single most damaging department that any company can ever start. This department is a 100% resource drain. You should never have more than one person in the personnel department. If you think this is not possible, look at how long Avis was able to function with just one Personnel department member. Note also the change in their corporation when it grew.

You now perceive your company as big!. You have probably incorporated and issued stock and may be considering a public offering.

You now need a customer support group to handle the growing market of customers you have generated. If you hire untrained people and place them in direct contact with your customers you will loose the customer. Since they don’t know enough to be helpful they will become very negative about your customer and given enough time drive your customer to the competetion.

Wake up!! Customers give your company money, support people spend your companies money.

If you ever hear your customer support people complain about the customer you should immediately repair this situation. While at IBM as a consultant in the late 80’s an IBM employee told me that customers were not important and should take the product IBM provided and be glad they got it. Well we all know where IBM used to be and where IBM is today.

The grim reaper has arrived. When the first committee is formed you have sounded the death meld of your company.

Another form of the committee is the Standards group. This is one of the strange manifestations that occur in all companies at some point in time and usually create enough chaos to justify their existence. Remember, this is a group that consumes resources.

IBM is a prime example of a company that did something very well then committed it to death.

It at this stage that the "Kill the Messenger" syndrome will become prevalent in your company. After all, if a committee can stop people from telling you that a mistake is about to be made you can remain blisfully ignorant. Committess are great for becoming forums for Politically Correct people to force their attitudes on the rest of the company and stop anyone who might object to some stupid course of action or heaven forbid, suggest a better way.

An item to note; this is the stage where Corporate Politics become noticable. If you find the most adept Corporate Politicions you can be sure you have found your biggest resource consumers.

Eagles will not fly in formation. This statement was made to me by a respected manager at IBM, he was right. As a mater of fact I think he left IBM.

Somewhere around the time the Committees begin destroying the corporation someone will have the great idea to start hiring from outside sources. Managers who never helped build the corporation will now be placed in power over the ones who made the company fly. These new managers, who usually have no idea how the business works, will begin to change the way things are done. Cubicles will probably start showing up about this time. Your prized employees will be herded like cattle into small boxes. People who felt that it was their company will suddenly realize that they are just an employee.

When this begins it starts as a trickle, one or two people will leave. Shortly after this you will notice that there is a trend of your first generation employees moving on to other things. If you have a month where more than 2 high seniority people leave you are in big trouble.

It is often at this time when a corporation starts downsizing due to no longer making the profit that they used to. The downsizing will eliminate the remaining good people who worked the long hours and made the extra effort that made the company great.

The bean counters will smile because these were usually well compensated people and now the books look good for a couple of months. If anyone were to look at the remaining work force they would discover that the ones who remain are usually worthless and are resource drain that you would have been better advised to clear while keeping those who left.

Look at the ratio of resource producers and resource consumers in your company, sad is it not?

Remember the file clerk who was always there with the needed folder? I’ll bet that person is nowhere to be found. Congratulations Slick, you are an idiot.

At this point the only reason the company is still alive is that your past actions accumulated enough capital to allow the company to continue. Profit margins are low, stock price has declined, Management changes occur in an attempt to save the dying beast. Meetings are held and more committees are formed to study why this has happened. You probably have hundreds of people producing charts and graphs that look great.

Remember that every employee working for your company that does not directly generate income is a resource drain. When you have more resource consumers than resource producers you are guaranteed to be loosing money.

You have reached retirement and you watch your life’s work fail and die. Worse yet, you no longer have the drive and desire to stop it.

You may have sold out to a larger company and now you watch as all you have built is dismantled and destroyed as the new owner force fits your business into his/hers. This is an exceptionally sad way to see a company die. Most companies are bought for the reason that another company that does not do a thing well notices that your company does do the thing well. Upon acquiring the company that does the thing well the new parent company will begin to apply their ideas and philosophies to the newly acquired company. The act of doing this will usually destroy the ability of the acquired company to do the thing well that first caught the attention of the acquiring company.

A sure way to know you are here is that a large part of the remaining work force is moonlighting for Amway.

Simple, follow these rules and don’t allow your company to reach Stage 5.

Your personnel department should never have more than one person in it.

If one of your managers suggest that a committee should be formed, suggest that this person seek a career move.

Never place one of your children in the higher positions of your company. I know that you like to say that you built it for your kids, but if that is true save it for your kids, keep them out. If you feel that your kid is the right person for the job and your kid started on the loading dock and worked his/her way to the top positions and had they not been related to you would have earned the same position then you are very lucky and the company may survive.

Remember your mind set when you started and always look for people with the same attitude.

Don’t mistake a college degree for drive.

Promote from within, after all aren’t these the people who got you where you are. Failure to do this one thing will always cause your Eagles to fly.

Last but most important, never allow the ratio of resource consumers to exceed 15% of the resource producers. Look at every job in your company and eliminate those that comsume resources and produce none.

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