Bill Taylor: Avoidable Disasters

Bear Stears, the Democratic Primaries, and how intelligent people can do such stupid things

Posted on Game Changer: March 17, 2008 11:06 AM

So sings Bruce Springsteen in his searing rocker, "Last to Die," a lament about the endless miscalculations that led to our endless war in Iraq. That line was ringing in my ears as I read this morning's headlines about the fiascoes gripping almost every element of our society, and wondering how intelligent people can do such stupid things:

The Masters of the Universe at Bear Stearns turn one of the great franchises on Wall Street into a $2 stock.

The political geniuses in the Democratic Party can't figure out how to conduct acceptable primaries in two of our most important states.

The likeable leaders of Yahoo continue to struggle with how to respond to Microsoft's unwelcome acquisition bid—the direct result of years of strategic missteps on the part of Jerry Yang and his colleagues.

The first instinct is to excuse these blunders on the theory that life is full of surprises. Who could have foreseen the meltdown gripping world financial markets? Who could have predicted that prideful jockeying for position by Florida and Michigan would throw the Democratic nomination into disarray?

In fact, the real explanation is much simpler—and starker. Even the most intelligent leaders have a way of doing idiotic things. Time and again. Despite all the evidence staring them in the face.

Last week, I gave a talk to a gathering of executives and directors organized by a Boston law firm. Prior to my talk, I sat through a fascinating workshop conducted by Sydney Finkelstein, the Steven Roth Professor of Management at Dartmouth's Tuck School of Business and the author of the must-read book, Why Smart Executives Fail.

The normal story we tell when things go wrong, Professor Finkelstein said, is that unpredictable forces messed things up—executives get blindsided by financial shocks, business models get "disrupted" by new technologies. In fact, he reported, of the 51 case studies he examined in-depth, it was almost never true that an outside shock caused the failure. Instead, failure was the result of leaders "choosing not to cope" with obvious signs of change.

He then enumerated what he called "the seven habits of spectacularly unsuccessful executives"—character traits that are at the root of so many screw-ups and flame-outs. I don't have space to review them in this blog, but you can read them here. And please keep in mind Professor Finkelstein's most basic conclusion: "Extreme success is a warning sign of failure."

How might you and your company avoiding becoming a case study in failure? My one piece of advice is to keep reminding yourself how easy it is to screw up—especially when you're in a position of great success.

Consider, for example, the wisdom of Silicon Valley hero Marc Andreessen. A few years ago, when we interviewed him for our book Mavericks at Work, he told us about a document he kept in his desk drawer as he was building his latest company—one he sold to Hewlett-Packard for $800 million. Called "Ten Reasons We're Going to Go Out of Business," it was a frequently updated list of the most serious threats to his venture—a way to concentrate the mind when things were going well.

Or consider Bessemer Venture Partners, the well-known (and quite successful) venture-capital firm. Like other VCs, Bessemer maintains a list of its most brilliant investments—portfolio companies that went public or got acquired. But it also publishes what it calls its "anti-portfolio"—great companies in which it could have invested but chose to pass. Among the missed opportunities: Apple, eBay, FedEx, PayPal.

Here's how Bessemer explains its anti-portfolio:

"Bessemer Venture Partners is perhaps the nation's oldest venture capital firm, carrying on an unbroken practice of venture capital investing that stretches back to 1911. This long and storied history has afforded our firm an unparalleled number of opportunities to completely screw up.

"Over the course of our history, we did invest in a wig company, a french-fry company, and the Lahaina, Ka'anapali & Pacific Railroad. However, we chose to decline these investments, each of which we had the opportunity to invest in, and each of which later blossomed into a tremendously successful company.

"Our reasons for passing on these investments varied…[But] whatever the reason, we would like to honor these companies—our 'anti-portfolio'—whose phenomenal success inspires us in our ongoing endeavors to build growing businesses. Or, to put it another way: if we had invested in any of these companies, we might not still be working."

Bessemer's humor is in the service of a serious point: If you want to sidestep disaster, don't pretend that it's not possible (or even likely), or that you haven't barely sidestepped it already. The best way to avoid failure is to prepare for it—at the time of peak success.

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