Today’s morning read follows the business finance theme of the week, but addresses several factors around success and failure of businesses (large and small). It especially tackles how success can lead to failure, and that transition is something I’m particularly interested in as my work grows. Enjoy!
Why Things Break: Easy Causes of Business and Investing Failure by Morgan Housel
Tens of billions of individual steps have to go right in the correct order to create a human. But only one thing has to happen to cause its demise.
Consider: the average kitchen remodel takes 12 weeks. But after just five weeks a human embryo has a brain, a beating heart, a pancreas, a liver, and a gallbladder. By birth it has 100 billion neurons, 250 trillion synapses, 11 cooperating organ systems, and a personality. It’s staggeringly complex.
Death, on the other hand, is simple. Most deaths – trauma, heart disease, stroke, some cancers, infections, drugs – are caused by blood and oxygen deficiencies. That’s it. A disease itself might be complex, but the fatal strike is not enough blood and oxygen getting to where it’s needed.
The idea of “complex to make, simple to break” is everywhere. There are a million ways to succeed at business and investing. But once successful, failures are usually caused by only a few simple things.
Success increases size, size increases complexity, complexity plants landmines
Growth can be both a wise strategy and the early path to failure.
Size increases some things linearly and others exponentially. Increasing revenue 100x can be modeled in a spreadsheet. But managing 10 people is a completely different universe from managing 1,000.
Success teaches you how to win the last war, which becomes the only war you know how to fight
Say you get good at one thing. You learn, through real experience, that the thing works. It isn’t theoretical; you have results.
Big companies have a long history of not adapting. Sometimes that’s because size slows them down. Often, though, it’s because the whole reason they got big is because of a certain strategy, a certain formula, a certain way of doing things, which makes them the least willing of any company to do things a different way even when it’s necessary.
Read the full, very insightful article on The Collaborative Fund – Why Things Break: Easy Causes of Business and Investing Failure
And as always, if you enjoyed this, check out the rest of our daily snippets, curated daily, right here on The Red Notebook.
