Ep 400 | Why You Must Understand the 5 Stages of Decline

Thank you for joining me today. It's Brian Gubernick, and welcome to the No Days Off podcast, where we believe that every single day brings a new opportunity to get better. With that, we are going to study today the 5 stages of decline and why you must, as an entrepreneur, as a business person, even as a parent and someone committed to getting better every, every single day, why you must understand these 5 stages so that if in fact you ever find yourself in one of these stages, you know how to get out of it. So the 5 stages of decline, what I'm referring to is what Jim Collins, uh, described in his book How the Mighty Fall. How the Mighty Fall was a follow-up to the book Good to Great. In that How the Mighty Fall book, Jim outlined the 5 stages that companies go through on their path to decline. And I think it— this concept, these 5 stages apply beyond just business, beyond just companies, but let's start there, then we'll eventually figure out how this is applicable in other places in our life. So, these stages, what are they? They're really a diagnostic tool. For understanding how once great organizations fall into failure. And the idea here is, if we understand how these once great organizations fall into failure, how we can apply that knowledge, or how we can take that knowledge, apply it to our world, and thereby avoid— not just avoid failure, but thrive. So here's a breakdown of the stages. Stage 1. Stage 1 is hubris born of success. Hubris Born of Success. Stage 1 essentially is when success breeds overconfidence. So companies begin to believe that their success is inevitable and it's driven maybe solely by their own brilliance, and they start to neglect luck or external factors. These companies will lose sight of their core principles that made them great. And they maybe start taking success for granted. So stage 1 in the 5 stages of decline is overconfidence, hubris born of success. Stage 2 is undisciplined pursuit of more. So a company passes stage 1, it's not just overconfident, but moves into the stage 2, this undisciplined pursuit of Pursuit of more. In this stage, companies start to overextend themselves. They start chasing growth, they start expanding, they start innovating without discipline, and they don't ensure that their pursuits, whatever they may be, align with that original vision. This could be chasing new ventures or chasing new markets, and as a result, focus may be diluted. Capabilities may be limited or stretched, and quality oftentimes suffers. So, Stage 1 was this degree of overconfidence in that, you know, your success was based on your own brilliance. Stage 2 is this undisciplined pursuit of more. Stage 3, it's kind of a turning point. This is denial of risk, denial of risk and peril. Leaders start to ignore in Stage 3 warning signs. They start to downplay risks. They start to rationalize negative data. And success creates a culture— their success created a culture where problems and risks are minimized or even overlooked. Sometimes external feedback is ignored and leaders maybe maintain a false sense of security. So we have this overconfidence at first in stage 1, and then stage 2, this undisciplined pursuit. Of just more, then stage 3 is just denial. Denial of risk, denial, downplay of risks, rationalize— rationalizing negative data, ignoring external feedback. When you get to this point, it's tough to reverse course. Lots of companies unfortunately find themselves here. Stage 4, you're nearing death. Stage 4 is grasping for salvation. In this particular stage, companies face, call it what it is, an undeniable decline. And what happens? They start to respond by seeking quick fixes, like hiring some charismatic leader, someone they think that could completely turn it around, or maybe they announce some big, you know, bold restructuring plan, or they have some dramatic new initiative. So, the focus shifts to these desperate strategies rather than the disciplined execution that they probably need to generate some sort of sustainable recovery. And then Stage 5, the final, uh, stage of a company's decline, is this capitulation to irrelevance or death. At this point, Stage 5, companies either fade away or they just die altogether. I mean, the leaders of the company may lose hope, morale's terrible, company becomes bankrupt or irrelevant or acquired, whatever it may be, recovery is probably impossible because of the accumulated damage from all the other stages. So I'm sharing this with you because what Jim Collins discovered was that there was a pretty consistent flow through these 5 stages when companies, you know, when you analyze companies in hindsight you see them run through these 5 stages before they ultimately fail. And so the idea again here is that if we understand these 5 stages and we ever find ourselves maybe progressing, or at least being more aware of progression, we can do something about it. Because each stage represents some sort of progressively worsening condition, but you can in fact reverse course if you catch yourself early enough in the decline. So, once you have this understanding of the 5 stages, what can you do? Well, let's go back through these stages quickly so you can think around this, right? So, stage 1, if you remember, was this overconfidence, this hubris born of success. We have to have awareness of overconfidence. We've got to recognize early warning signs of arrogance. Leaders can remain humble and stay grounded in the principles and disciplines that led to the initial success. But they have to have awareness of the risk that is overconfidence. This would help prevent complacency. It would ensure that success is not taken for granted. So first thing I'm thinking about is how do I have greater awareness? How do I recognize that I could find myself overconfident? Number 2, remember stage 2 was undisciplined pursuit of more. So how would we counteract that? Having a disciplined growth plan. Many businesses fail by pursuing diversification or growth that exceeds their capacity or, or even their core, uh, competencies. So understand that this stage encourages companies to grow responsibly. You don't overextend yourself. You don't stray too far from, from what made your company what it is. It's a focus on disciplined growth. It may be slower, it may take longer, But history would show that undisciplined pursuit of more works out far less than it does result in failure. Number 3, stage 3, remember, was denial of risk. So how do you counteract that? You gotta have courage. Courage to confront problems mainly. Gotta— like, in identifying the stage, um, really kind of emphasizes the importance of facing what I would say are pretty uncomfortable truths and being open to feedback. You got to have the courage to confront problems. Leaders that can in fact course correct before the situation becomes dire are those leaders that could potentially turn the company around. But the only way that happens is if there's transparency and if there's willingness to acknowledge risks that could potentially exist. We can't have a culture that prevents denial. We just can't have it. And that's got to be something we practice on the regular. How do we have— how do we create an environment or culture that is courageous and, and, and is willing to directly confront problems? Stage 4, if you recall, was grasping for salvation. How do we counter that? Well, avoid desperate measures. It goes without saying, don't even get yourself to Stage 4. But if you do, you got to avoid desperate measures. Organizations in decline like I said, usually resort to like these quick fix strategies, but they don't address the underlying problems. So avoid, as the leader, avoid knee-jerk reactions. Focus instead on thoughtful, disciplined approaches to recovery. Think about, you know, just surviving in the long term, you know, you know, creating the sustainability rather than just creating some sort of quick short-term gain. And then stage 5— remember, stage 5 was just capitulation to irrelevance or death. Uh, how do you counter that? Will prevent a complete collapse by understanding that the final stage really allows for companies to act swiftly before reaching the point of no return. So if you can detect early signs of decline, you can implement changes to avoid irreversible demise, right, that ultimately leads to failure. So overall These steps that we've given you offer a framework for maintaining discipline within your organization, but it requires you to have humility, to have focus, and especially to be a proactive problem solver. You got to be a black hat. You got to be asking yourself, you know, not why are we so successful, but what could be getting in the way? What obstacles exist? What am I not seeing? I think that leaders who understand these stages can spot the early signs of decline and steer their organizations back towards greatness well before disaster strikes. Now, we don't have time today to run through all of the examples, but you could probably think right now of those companies that we've talked about here in the past at No Days Off that went through all 5 stages and are now completely irrelevant today. But there's also a lot of companies we know of that made it to stage 1 or stage 2 or even stage 3, but were able to turn things around by taking the steps we just described and being patient and being honest, being humble and having courage. So the focusing question for you today is within your business, your personal business, either the one you lead with many people or maybe it's just you as a solopreneur, right? An individual who's who's building a business. Are you in any of these stages? It's possible. It's very possible. A lot of people here, you know, listening to No Days Off podcast have had a lot of success, early success in their business, and have even probably even attempted what I would call an undisciplined pursuit of more. Recognize that you're at risk, and you may even be at stage 3, which is denial of that risk. So I want you to look in the mirror as the focusing question today and ask yourself, am I experiencing, am I living in any of these stages? And if so, what steps do I take right away to counteract these stages and get us back on the path to success? That's all I have for you today, the No Days Off Podcast. Thank you so much for listening. And remember, every single day brings a new opportunity to get better. So let's get after it.