The Corporate Cycle of Life

Yesterday, I had an engaging IM conversation with Nate Mook of Betanews fame about companies and how they operate. The topic had been Microsoft and its position with respect to younger companies. The IM exchange below picks up where Nate speaks of a book he is reading.

Nate: Maybe they’ve been reading “The Innovator’s Dilemma.” Just started on that book, actually.

Joe: I haven’t read it.

Nate:: Basically talks about how established companies can lose their market position but some new innovation (like Sears getting trumped by discount stores). But losing your position because of inability to change is no different than losing your position by trying to change too much.

Joe: The nature of life is morning, noon and night—growth and aging to be replaced by something new and growing. Companies aren’t supposed to last forever. In part because they reflect people.

So Sears dominated during the rural, catalog years but lost presence to discounters and malls as the country urbanized. K-Mart and other discounters were replaced by the likes of Wal-Mart. And now there is Amazon.

Nate: Yep.

Joe: As these companies grow and establish infrastructure, the thing that made them successful prevents their flexibility to change. They cling to what they have, because they have to. Or think they have to.

Nate: I was just about to ask: can you even change when you become so dominant? Is it even a choice? Or do you just accept the fact that you work with what you have. Because you’re right, companies have a lot of infrastructure built up that can’t be simply demolished and restarted from scratch.

Joe: And if they’re big, like music labels, auto makers or IBM, they inhibit change—like a big tree preventing light from reaching the forest’s new growth. Old people have a hard time adapting. It’s worse with old companies, I say. The nature of life is to multiply, to create new life.

Nate: Case in point: the airline industry. All of the big airline players have little chance to survive long term. They simply can’t do it. Upstarts like JetBlue can build their business from the ground up, no unions, stock options for employees, and profitable from the start. United and Northwest can’t do that, they are too big. Too many airplanes, too many contracts.

Joe: I’m thinking the best thing these companies could do is to break up into smaller companies around core areas. In essence, reproduce.

Nate: Agreed. Keep the old business alive as long as possible, and build the new business with the help of the old one. And there will be a time where the new business takes charge and the old one disappears. Strange how that mirrors life itself.

Joe: Yes. Doesn’t it.

Nate: You get older, have children, bring them up, and eventually they replace you and the cycle begins.

Joe: Yup.

Nate: More businesses should start to think that way.

Photo Credit: Tom Hubbard, courtesy US National Archives; added Nov. 27, 2010