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Applying Principles of “How the Mighty Fall” to Property Management

A very interesting book that I highly recommend you read is How the Mighty Fall and Why Some Companies Never Give In by best-selling author Jim Collins. It is a fascinating look at failure. Collins says this about his purpose for writing the book and why we should study this topic: “We do ourselves a disservice by only studying success. We learn more by examining why a great company fell into mediocrity (or worse) and comparing it to a company that sustained its success.”

Collins made this statement when the book first came out about the importance of understanding the stages of decline. He said: “Every institution is vulnerable, no matter how great. There is no law of nature that the most powerful will inevitably remain at the top. Anyone can fall, and most eventually do. But not all is gloom. But understanding the five stages of decline we uncovered in our research for How the Mighty Fall, leaders can substantially increase the odds or reversing decline before it is too late—or even better, stave off decline in the first place. Decline can be avoided. The seeds of decline can be detected early. And decline can be reversed…The mighty can fall, but they can often rise again.”-Business Week, May 25, 2009, p. 30.

Collins and his research colleagues collected and analyzed a tremendous amount of data (by his calculation close to six thousand years of combined corporate history), boxes of historical documents, spreadsheets and financial information. After substantial research, Collins sheds some light on why great companies fall and details the five stages of decline. These are:

Hubris born of success

It is easy to become insulated by success. As Collins says, “Stage 1 begins when people become arrogant, regarding success virtually as an entitlement, and they lose sight of the true underlying factors that created success in the first place. When the rhetoric of success replaces penetrating understanding and insight, decline will very likely follow.”—Business Week, p. 31.

In other words, do you understand why you do things you do in your property management business and under what conditions the things you have been doing will no longer work?  The property management business is constantly changing.  Understanding why you do things a certain way and staying humble enough to realize that you’ll never have the ultimate understanding of everything is a critical difference to long-term sustainability and staying away from the first step of decline.

Undisciplined pursuit of more

Thinking you can do anything in your business leads to stage 2. As Collins points out, “Companies in Stage 2 stray from the disciplined creativity that led them to greatness in the first place, making undisciplined leaps into areas where they cannot be great or growing faster than they can achieve with excellence—or both. When an organization grows beyond its ability to fill its key seats with the right people, it has set itself up for a fall. Although complacency and resistance to change remain dangers to any successful enterprise, overreaching better captures how the mighty fall.”  –Business Week, p. 32.

This is essence of trying to grow too fast or trying to do what you see others doing (especially your competitors) without understanding the framework necessary to make such growth possible.  Here are six examples of pursuing more without discipline:

    • Jumping into categories or sectors within the property management business for which you have no burning passion
    • Taking action inconsistent with your core values
    • Investing heavily in marketing where you cannot differentiate your business as being different and better
    • Launching into an opportunity or acquisition that may not fit with your economic resources
    • Always looking and jumping into an exciting new business opportunity (while neglecting your core business)
    • Always seeking more without thinking of the consequence of having less time (opening another pillar may be rewarding but may also eat up your time and resources faster than you may have thought possible)
    • It can be easy to try to become something too fast, too quickly without the right infrastructure in place. Growth is critical, but the grass isn’t always greener on the other side of the fence. Build your core business strong before you try to expand into other areas.

Denial of risk of peril

When businesses move into Stage 3, there may be internal warning signs, but the external data someone chooses to look at may be strong enough to explain away trends or data that you think are ‘temporary’, ‘cyclic’ or ‘not that bad.’ Property managers who have been in the business for years who thought or felt that franchises wouldn’t have an impact or that new software offerings wouldn’t have an impact several years ago are now feeling the peril that came from ignoring warning signs. As Collins says, “In Stage 3, leaders discount negative data, amplify positive data, and put a positive spin on ambiguous data. Those in power start to blame external factors for setbacks rather than accept responsibility.”

He gives a great analogy (from Bill Gore) called the “waterline” principle. He says, “Think of being on a ship, and imagine that any decision gone bad will blow a hole in the side of the ship. If you blow a hole above the waterline (where the ship won’t take on water and possibly sink), you can patch the hole, learn from the experience, and sail on. But if you blow a hole below the waterline, you can find yourself facing gushers of water pouring in, pulling you toward the ocean floor. And if it’s a big enough hole, you might go down really fast, just like some of the financial firm catastrophes of 2008. To be clear, great enterprises do make big bets, but they avoid big bets that could blow holes below the waterline.”–Business Week, p. 32.

What changes in the market have you minimized that have really had an impact on your property management business?

What challenges or risk are you denying now that could be leading you down a path of decline?

It is really important to be able to recognize your weaknesses in this step. If you don’t, you could be setting yourself up for more challenging times ahead.

Grasping for salvation

Once you’ve taken several risks, these can add up to the point where your property management business’s sharp decline is visible to all. What makes the difference is how you as the leader respond. Do you return to the disciplines that brought about your success in the first place or do you start grasping about for a quick fix?

As Collins says, “Those who grasp for salvation have fallen into Stage 4….The very moment when we need to take calm, deliberate action, we run the risk of doing the exact opposite and bringing about the very outcomes we most fear. By grasping about in fearful, frantic reaction, late Stage 4 companies accelerate their own demise…..Leaders atop companies in the late stages of decline need to get back to a calm, clear headed and focused approach.  If you want to reverse decline, be rigorous about what not to do.” –Business Week, p. 33.

If you are experiencing Stage 4 in your property management business, are you stepping back and moving forward with a calm, clear headed and focused approach that will help you get back to the fundamentals? Have you considered the benefits converting your business to a franchise will have to your long-term survival and growth in the property management industry?

Or are you grasping for quick fixes and going from crisis to crisis?

All of us have bad days. The key is to bounce back quickly and to refocus on the priorities of the business.

Capitulation to irrelevance or death

Businesses who continually grasp for quick fix solutions or silver bullets and repeatedly stay in Stage 4 are more likely to spiral downward even more.

As Collins says, “In Stage 5, accumulated setbacks and expensive false starts erode financial strength and individual spirit to such an extent that leaders abandon all hope of building a great future….The point of the struggle is not just to survive, but to build an enterprise that makes such a distinctive impact on the world it touches (and does so with such superior performance) that it would leave a gaping hole—a hole that could not be easily filled by another institution—if it ceased to exist.”—Business Week, pp. 35-36.

Businesses that reach this stage of business decline have to retain faith and do the things necessary to survive. He also points out that if you can find out what stage of decline you may be in, you will be much more aware of how to stop the downward spiral and reverse the decline before it is too late. The book How the Mighty Fall also provides a self-diagnostic checklist at the end of each section of the first four stages of decline which I would recommend that you take as a way to evaluate your property management business’s health.

By studying the stages of decline as outlined in Collins’ book, you can detect, reverse, and avoid decline in your property management business if you know what to look for.  By understanding these principles, you can recover from challenging times and in some cases, come back even stronger.  As in the case of numerous companies who have been in these stages, the mighty can fall—but they can often rise again. Studying the stages of decline and learning what not to do can often be as helpful as knowing what to do.  I hope you’ll read and study How the Mighty Fall and think about its important lessons for your business.


jamesb

James Butler

James Butler is Director of Franchise Development at Property Management, Inc. He has built four companies from the start-up phase to over a million dollars in revenue. He is the author of the best-selling book The System is the Secret and helps entrepreneurs take action in their businesses. He and his wife Heather are the parents of five children.