What Happens To The Businesses?

I happened to be speaking with some people the other day about how few businesses remain in town compared to 1965.  Nearly all are gone.  One that remains employs about 20% of the number they employed 50 years ago.

Some of them disappeared in corporate consolidations, while others just went out of business.  For the people who once relied on them, it makes no appreciable difference why.

Discovering the fundamentals makes for interesting thinking.

Times change.  One of the issues here dealt with American companies who in 1965 operated in Canada to gain preferential tariffs on shipments within the British empire.  Once that tariff advantage disappeared so did the reason to be in Canada.

Another is more fundamental and that is businesses are hard to manage for a long time.  There must be an adaptation to changing circumstances and not all are able.

James Ling was the founder and chief executive of conglomerate LTV Corp a stock market success in the 60s and early 70s.  In the early 60s it was the 14th largest industrial corporation in the United States.  It collapsed in the 70s because it could not easily change its method of creating value.  Rising interest rates, regulation and a depressed stock market made their acquire, break up and redistribute stock methods untenable.  Their final acquisition doomed them.

Mr. Ling’s discussion points out the problem with remaining effective for a long time.

“I was right twelve times and only wrong once.”

The right often, wrong once pattern is not unique to LTV.

People who create businesses and watch them grow quickly sometimes hold the delusion that they can always manage it.  That is usually not true.  The skills to manage businesses change as they grow.

Clever new products, great sales skills and a little money will go a long way in the beginning, but after a while, people learn that day to day running of the business is a fundamentally different skills set.  Runners have trouble building and builders have trouble running.  There is little commonality of skills.  Executive management and administration are different.

Builders who try to run businesses become bored and often accept mediocre operational performance.  The best people leave.  The customers eventually find replacements for gradually obsolete products.   Good enough becomes the norm.

Golfer Lee Trevino claims:

“There are two things that won’t last long in this world, and that’s dogs chasing cars and pros putting for pars”

Business is like that too.  If par is the best score you can make, you won’t be around long.  Someone else is putting for birdie and making some of those putts.

To maintain excellence is a huge task.  To have a chance, the builders cannot run their business.  Look at Apple, Microsoft, Google, EBay, HP, Virgin and more where the leaders stepped aside from the day to day.

It is something to plan for well before the need becomes critical.

Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

Contact: don@moneyfyi.com  

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