The Wisdom of Failure

How to Learn the Tough Leadership Lessons Without Paying the Price

Laurence G. Weinzimmer, Jim McConoughey

• Publisher: Jossey-Bass
• Year: 2012
• Print ISBN: 9781118135013
• eBook ISBN: 9781118238721
• Edition: 1
• Topic: Business
• Subtopic: Leadership
• Index: Business

The "how-not-to" leadership book

There is a paradox in leadership: we can only succeed by knowing failure. Every accomplished leader knows there are minefields of failures that need to be navigated in order to succeed. Wouldn't it be great to have the insights to help you prevent from making avoidable mistakes? Unfortunately, in business talking about mistakes can be taboo, and, at a certain level, learning from failure is not an option. Weinzimmer and McConoughey speak frankly about the things that are difficult to talk about – the unvarnished truths necessary to become a successful leader.

• Based on a groundbreaking 7-year study of what almost 1000 managers across 21 industries really think about lessons from failures
• Includes exclusive interview material from CEOs at a wide range of organizations, including major firms such as Caterpillar, Priceline.com, and Allstate; startups; and entrepreneurial small businesses
• Drills down into failure to uncover the strategies that aspiring leaders need in order to avoid the most damning leadership mistakes: unbalanced orchestration, drama management, and reckless vanity

Learning from the mistakes of others is a necessary part of the journey of effective leadership, and this book offers an indispensable guide to learning these powerful lessons—without paying the price of failure.

PART ONE
Unbalanced Orchestration

TWO

Seduced by Yes

Trying to Be All Things to All People

Throughout time and industry, leaders have made some pretty huge errors in spending—errors that we spectators love to mock as moments of insanity or, at the very least, idiocy. Why would a leader spend resources in a way that actively destroys his company? Assuming the leader is thoughtful, paying attention, and not trying to sabotage anything, why would he push the “spend” button so eagerly, when it seems so clear it was the wrong call? Chances are that he is neither insane nor an idiot. Rather, leaders drive companies—and their own careers—into the ground because they have a problem with the word “yes.” They suffer from an inability to step back, get off the treadmill, and say “no” to opportunities when that’s exactly what they should be saying.

Jim Owens, whom we met in the last chapter, described the consequences of the “yes” problem as “having a long tail.” It can take months, or even years, to assess whether the outcomes of many leadership decisions were right or wrong. With the benefit of 20/20 hindsight, we followed several of these “yes” mistakes all the way back to the decision’s origin in order to identify the underlying causes. When you look closely at where all the trouble began, the lessons inspire an edifying mix of “Aha, I should have seen that coming” and “Wow, I never knew that.” Intel CEO Craig Barrett diagnosed the “yes” problem in this way: “Companies have to invest to make money. It’s when my managers one, speculate; two, overcommit; and three, try to be heroes that we run into real trouble.” As it turns out, Barrett’s list aligns closely with the three major catalysts identified in our research: irrational greed, escalation of commitment, and trying to be all things to all people.

By irrational greed we mean chasing dollars for the sake of chasing dollars. It is characterized by the inability to say no to new opportunities—even if they don’t fit within the strategic context of the organization. Escalation of commitment occurs when a leader cannot admit failure. She makes a poor strategic move, and instead of saying “no more” and conceding the battle, she commits even more resources, throwing good money after bad and sinking costs into a bottomless black hole.

Finally, leaders falter when they try to be all things to all people. This behavior stems from the attitude, “Why would we intentionally exclude a customer segment?”

These three catalysts are responsible for destroying careers and destroying companies. In this chapter, we will discuss each one, provide examples of otherwise good leaders who fell into common traps, and offer tools to help you steer clear of these mistakes yourself.

IRRATIONAL GREED: CHASING PENNIES WITH DOLLARS

You are a pretty good leader. Your track record is solid, and you’ve accomplished some short-term victories as you’ve led a successful organization. Most of your decisions have been effective. Now you are faced with a new opportunity—an opportunity that has the potential to generate significant revenue, but that doesn’t fit strategically with the scope of your organization. Nevertheless, your eyes open wider when you discover that the revenue potential is bigger than you originally anticipated. You are very tempted. What do you do?

If you take the leap, you’re not alone. Many leaders don’t have the discipline to say “no” to money-making opportunities, even those that fall outside of the firm’s scope. And many times, that’s when a downward spiral begins. The company jumps in with both feet and starts chasing dollars without critically assessing whether the opportunity is strategically appropriate. The leader becomes so enamored with the idea of the new opportunity that he sacrifices his strategic direction. Once that’s gone or compromised, the company may lose focus altogether. The leader starts leading opportunistically rather than strategically, like a shark attacking anything that moves.

This sort of thing happens all the time because, very simply, it’s hard to say no to money, and sticking to a plan is challenging when alluring opportunities arise. Leaders don’t realize they are making a mistake, because making money is their job. So following money seems like a sensible strategy. It isn’t. It’s a substitute for strategy, and it can be a costly mistake.

When we interviewed Jeff Hoffman, a founder of Priceline.com, he admitted as much. “It’s hard to say no to money,” he told us, then added, “A good leader needs to know when to leave the money on the table.” Hoffman explained how he and his partners were able to do exactly that in order to succeed. While the dot-com bubble was bursting and many entrepreneurs were finding themselves the victims of dollar chasing, Hoffman refrained. “When Priceline became good at airline tickets,” he said, “others wanted us to sell their things on our website. Our business was built around airlines and hotels. We had to decide if we were going to expand through other products or new geographies. We had a chance to sell suitcases. Is there money in selling suitcases? Absolutely, but we have decided we are not going to get into luggage. Rather, we are going to expand the business that we already do better than anyone else.”

When a leader starts chasing dollars, she runs the risk of losing strategic direction and misallocating resources. Unbalanced orchestration, or unfocused leadership, is virtually guaranteed. Chasing after dollars is like taking “strategy spaghetti” and throwing it against the wall: whatever sticks becomes your next opportunity. There is no cohesive direction, no firm control. The leader has a problem that stems from irrational greed. She makes decisions without constraints—but a leader needs to work within constraints while avoiding constriction. Constraints set up parameters that represent your strategic direction—a leader’s responsibility. If the direction is too narrow, it constricts the flexibility you need to grow; if it’s too broad, it offers no guidance for decision making.

Imagine you are driving down an expressway in a large city. There are six lanes going in your direction. To the left of the six lanes, there is a large concrete median; to the right there is a shoulder. You cannot cross over the concrete median to the left nor drive over the shoulder to the right. These are your parameters, your constraints or boundaries. However, they are not so constricting that you have to stay in one lane. You are free to change lanes as much as you want to get where you’re going, as long as you don’t cross over the boundaries. Leaders who engage in chasing dollars have no boundaries—they jump the concrete median (or at least they try to). As long as they think they can make money, they pursue it, without rhyme or reason, and with predictable consequences.

Consider the story of L.A. Gear. Robert Greenberg, founder and former CEO of L.A. Gear, spent his early professional days as a hairdresser and wig salesman. From these experiences he developed a deep understanding of women’s fashion. He then started to rent and sell roller skates to patrons in the Venice Beach area of California. With his keen fashion sense, Greenberg started marketing E.T. shoelaces (based on the movie E.T.) as a way to accessorize the skates, and ultimately opened up a hip women’s fashion shop: L.A. Gear.

While selling women’s clothes, Greenberg noticed that his daughter’s friends wore boys’ high-top basketball shoes because none were designed specifically for girls. He soon discovered that only 20 percent of athletic shoes were actually used for athletic activities, and he came up with a fantastic idea: Why not design trendy high-top shoes for girls—not as athletic gear, but as a fashion accessory? He closed his retail shop and started importing Korean-made fashion sneakers under the same name. He designed shoes in bright flashy colors like pink and turquoise, and he started to “bedazzle” the sneakers with sequins, palm trees, and other California-inspired bling. Greenberg even redesigned the high-top shoe, stopping the eyelets at the ankle—a design effort to improve style, not performance, as removing the eyelets made it anything but a performance shoe. Additionally, each pair of shoes was sold with multiple pairs of shoelaces, to further help the purchaser accessorize. L.A. Gear even developed its own type of “slouch” sock to be worn with its shoes, further targeting young women.

Greenberg knew his market. L.A. Gear became an instant success. In 1984, Greenberg launched a national advertising campaign, promoting his shoes as the “Los Angeles lifestyle.” Sales skyrocketed from approximately $11 million in 1985 to more than $820 million in 1989.¹

To position his fashionable shoes as a high-end brand, Greenberg sold them only in stores such as Macy’s and Nordstrom. By 1989, L.A. Gear was the top-performing stock in the shoe industry, becoming a national brand known for cutting-edge accessorized girls’ and women’s shoes, and promoted with risqué ads featuring beautiful California women. Greenberg’s company was named Company of the Year by Footwear News magazine and ranked third on Business Week’s list of the 100 Best Small Corporations.

Everything was going great. But things slowly started to unravel in the 1990s when Greenberg and the leadership team at L.A. Gear apparently became greedy and started to chase dollars. Three devastating strategic mistakes put the “Company of the Year” into bankruptcy.

• Strike one. In 1990, Greenberg made the decision to sell L.A. Gear’s excess inventory though deep discount outlet stores. This antagonized the retail distributors that sold L.A. Gear products at full price, as it diminished the high-end brand perception of the shoes. It was the beginning of the end for Greenberg’s company.
• Strike two. Also in 1990, Greenberg threw the metaphorical strategy spaghetti against the wall—and where did it stick? Men’s high-performance athletic shoes. Nike was making millions with its Air Jordan line of basketball shoes, so why not L.A. Gear? The allure was too great; the potential payoff was so tempting. But Greenberg was in the business of women’s fashion, right? Regardless, given his tremendous success in marketing and retailing women’s fashion shoes, he decided to chase dollars in men’s high-performance basketball shoes. Up until this point, the company had been heading down the proverbial expressway quite well, changing lanes when necessary to offer new and exciting styles of women’s shoes. But now Greenberg consciously decided to jump the concrete median to chase dollars in the highly competitive performance-athletic shoe market.
  Greenberg started investing significant resources in men’s athletic shoes, paying top dollar for high-visibility endorsers, including L.A. Lakers basketball great Kareem Abdul-Jabbar and San Francisco 49ers football great Joe Montana.² Greenberg decided to massively market his Catapult line of shoes to compete directly with Nike’s Air Jordans. Unfortunately, for a company that was known for selling the California lifestyle to young girls, jumping the median was difficult, as consumers were not very receptive to the marketing campaign. To make matters worse, in a nationally televised college basketball game between Kansas and Marquette in December of 1990, one of the pairs of L.A. Gear high-performance basketball shoes literally fell apart during the game, causing a player to trip and fall. It’s no surprise that the national media picked up this story, and it was all over national television.
  Greenberg learned the painful way that competing in the men’s high-performance basketball shoe industry is different from retailing trendy shoes to young girls. The college basketball game blunder caused L.A. Gear to report its first quarterly financial loss in early 1991. The death spiral continued in the second quarter. Bank of America lowered L.A. Gear’s credit line. The company was in financial trouble. In January 1991, L.A. Gear was acquired by Trefoil Capital Investors L.P. Two weeks later, Trefoil replaced Greenberg as CEO with Mark Goldston, a former Reebok marketing executive. In 1994, L.A. Gear decided to abandon their men’s high-performance athletic shoe lines and began refocusing on lifestyle brands to women and young girls. Goldston tried to acquire the Ryka brand of women’s shoes, but the deal fell through, as Ryka was in about as much financial trouble as L.A. Gear.
• Strike three. The allure of chasing dollars became too great again in 1995, when leaders at L.A. Gear chased an opportunity to sell large volumes of shoes through the biggest retailer in the world—Wal-Mart. They agreed to a three-year contract, whereby L.A. Gear committed to rolling out a new line of lower-priced shoes targeted toward Wal-Mart customers. The potential to partner with Wal-Mart was such a large opportunity to chase dollars that leaders at L.A. Gear believed they couldn’t afford to pass it up—even though it didn’t support the brand image. Unfortunately, sales declined and the brand was ruined.
• You’re out! The leaders at L.A. Gear had jumped the median yet again to chase dollars, and this time there was no going back. By 1998, the company filed for Chapter 11 bankruptcy. The company’s stock, once valued at over $1 billion, was now worth absolutely nothing. A company that had been known for its tremendous rise to success now became even more famous for its leadership mistakes. In 2000, an article in the New York Times described L.A. Gear as one of the industry’s “most spectacular collapses.”³

Lest this cautionary tale scare leaders into staying solely on the straight and narrow, note that if you insist on sticking to just one lane, results are similarly poor. Leaders must create some constraints, but that simply means they must establish parameters to help keep their business on track. Businesses that too strictly constrain their products often are negatively affected by new competition and environmental changes such as recession. One of the CEOs we spoke with explained, “I got on a way of doing business that was producing okay revenue. I was in my space making brass washers and springs. I limited my focus to only these narrow products. I didn’t see China coming into the market as fast as my customers did.” He lost his entire business.

Our research has shown that when leaders abandon their strategic direction to chase after opportunities outside the scope of their business, bad thing...

Table of contents

• Cover
• Praise for The Wisdom of Failure
• Title page
• Copyright page
• ONE: Flawless Leadership
• PART ONE: Unbalanced Orchestration
• PART TWO: Drama Management
• PART THREE: Personality Issues
• A FINAL CAVEAT
• ACKNOWLEDGMENTS
• INDEX
• ABOUT THE AUTHORS
• Introducing the Wisdom of Failure Keynote