Lifecycles, leadership, outcomes...DNA decoded!

“In the business world, the rearview mirror is always clearer than the windshield”

 – Warren Buffett

We have often heard about business lifecycles be it for product, concept, services and organization, along diverse operating models. We are also aware of phases of the lifecycle, be it startup, growth, maturity and decline.

We have all seen leadership playing out in different tenors & hues across organizations, adroitly defined by Management and HR fraternities in its lofty euphemisms.

It’s time to dissect the Corporate Lifecycle that is born, grows, matures and dies. The underlying theme being that the focus of the company needs to change depending on its life cycle.

More value is destroyed by companies not acting their age, as per Prof Damodaran, Stern School of Business, New York University. Young companies trying to act old and old companies are trying to be young.

Bankers and Consultants are deemed to be the plastic surgeons of business providing the desired face lift to become what they aspire to be. Botox is as much to skin as to the grin of the Corporate wanting to be dressed & masked appropriately, devoid of the core.

Adding in the 3rd dimension of valuations, that completes the triage of a corporate anatomy and associated orifices.

Valuations are all about story and numbers, the balance changes as the company goes from start up to young company to old company to a has been.

4th is the talent mix that makes a company survive, thrive or stay alive.

Great CEOs are made where they are picked, placed and empowered at each relevant stage of the corporate lifecycle. Their relevance and impact vary at each stage of evolution, as it requires a different dynamism, DNA and mindset to lead growth, counsel decline and advise divestment.

A mature company cannot mask itself to be a start up or young growth company again with a few camouflages, it must start off anew with a different identity, have a different talent set leading it, old wine in new bottle…nah!

How to run? How to value? How to re-pivot?

If I tell you, that there is a non- linear approach to leadership when it comes to organizational lifecycles and leadership pivots around the phases with different outcomes, wouldn’t that be interesting to delve into?

Lifecycles are getting compressed; analysts contend tech companies age in dog years when compared to other conventional sectors where gestation times are longer!

Every organization has a certain DNA and a life of its own, some peak early, some fade early, some decline from the start, and some succeed like no hypothesis can predict.

Agreeing with business analysts, take GE’s success over 125 years, to reach the market capitalization it had at its peak. Contrast that to Yahoo’s growth in 7 years to 100 bn USD market capitalization.

7 years for Yahoo… 50 years for GE for the 100 bn run!

25 years from birth to growth to decline for Yahoo, 125 years for GE!

GE is somehow staying afloat on diversification not its core, since its glory years and Yahoo miraculously still gets a mention with its 40 bn valuation, on accord of Ali Baba shareholding and Yahoo Japan stake holding, not by its search engine, mailbox or its IOT genius.

Both had lifecycles of their own, both declined eventually, only the trajectories were different, with a common denominator – about managing decline, not necessarily trying to act young!

Intriguingly, look at the success of UBER, it started off with a valuation by analysts of 6 billion USD as an Urban Car Services Company, completely turned the valuation on its head to 53 billion USD, with just a re-positioning of being a Logistics company being available globally!

Same company, different premises, different valuations.

Amazon as a business case has defied analysts in defining what business it is in and hence arriving at its templated valuation. Few argue that it is a disruption platform that can go into every business it wants on their adage – “we will build it and they will come”! It is said collectively old grocery businesses lost 40 bn USD in a single day when AMAZON entered the grocery business. It is still being seen as young growth company.

Armed with an army of loyalists of over 200 million through Amazon Prime, it has the scale, data, deep pockets and subscriber base to pretty much overhaul existing ecosystems. We talk about cartelization and monopolist overtures in business, how do you contend with the sheer dominance of this behemoth, that leaves much of its competition pretty much in the rubble. It is a glorious niche and an exception that defies the life cycle premise with a growing 604 bn USD revenue base currently.

Some companies love to play young much to their peril, as they disregard the red flags of their own company lifecycle. Take the acquisition of a cash bleeding E-commerce firm Flipkart India by USA’s leading retail giant Walmart for a whopping 16 bn USD, for a 77% stake. Some academics term it as the world’s most ridiculous “face lift” in history when Walmart wanted to be young again!

The average life span of a Fortune 500 company in 1930s was 90 years, 61 years in 1950s and today its 18 years!

Add to this 52% of Fortune 500 companies in 2000 have disappeared, showing the impermanence of corporate success. The oldest company in the Fortune 500 list is Bank of New York Mellon with the oldest company in the world being Kongo Gumi, the Japanese Construction company (specialized in temples & shrines) founded in 578 AD still operating from Osaka, Japan.

By that extension the oldest logo for a continuing brand is Twinings, a British Tea company founded in 1787, with no change at all, with a current revenue of 230 mn UK pounds, with a pre-tax profit of 95 mn UK pounds in 2023.

Whilst still on legacy brands and logos, Nike Swoosh is the most iconic logo in the world followed by McDonalds, whilst the most expensive logo in the world was Symantec followed by British Petroleum, the cheapest logo was Google at 0 USD whilst Apple is the world’s most recognizable brand with the most expensive brand being Louis Vuitton.

Does Longevity matter?

Free market economists tend to dismiss the value of longevity. Joseph Schumpeter’s term “creative destruction” has been a debate for both sides of leanings. Messy way of delivering innovation vs rendering existing products obsolete for the larger good. Not all destruction is creative and not all creativity is destructive.

As per a McKinsey study, longevity in a business context is largely relative. Some industries like professional services, banking, insurance and consumer durables incline towards longer time frames where customer trust is paramount. Whilst other industries like technology or fashion, the pace of change is very high and the entry barriers quite low.

As an analogy, a Tech firm that lasts for 15 years is as good as a Consumer product company that has lasted for 30 years. Hence longevity should be measured in cycles, not years, as argued by a few credible schools of thought, both academia and business!

So, the million-dollar question is why certain companies endure, while most fail at the limited altar of sustained success?

In decoding the Da vinci code here, it is important to draw a parallel between family owned and state owned businesses. Their pace, existence and raison d’ tre are influenced by clout, geopolitics and turning the BCG cash cow on its head, sans real economics.

Also, organizations can continue to thrive under different owners and by that extension change of owners led by private equity industries, as leverage and optimization levers to create success, are re-invented and driven ruthlessly.

The generic systemic causes of business decline stems from failure to meet challenges from market demand & competition; human failures owing to cultivated hubris, innovation stagnation, loss of ambition and inability to deal with new disruptive technological innovation.

More importantly, the single most barrier as surveyed was legacy mindsets and assets, that justify continual losses in lieu of a successful past, that ought to be reclaimed! KODAK as an analogy, invented digital photography, but seemed to wallow in its glorious past too much, to embrace new technology, a bit too late in the day. Other examples like Blackberry, NOKIA, Yahoo all great pioneers but succumbed to the hubris of its own success!

On the phenomenon of hubris itself, sometimes it pays to bring in critical lens on current performance, to drive qualified paranoia, as advocated by Andy Grove, ex CEO of INTEL and a celebrated author of the book “Only the Paranoid survive”.

Success breeds complacency, complacency breeds failure, only the Paranoid survive! (Andy Grove)

Coming back to the crests and trough of a corporate lifecycle, it is imperative the management understands the nitty gritty of priority decisions around which investments pivot, to navigate business pragmatically.

The notion of connecting numbers and stories, more so balancing it as per the lifecycle, is supposedly good valuation.

For any corporate across its lifecycle, there are predominantly 3 critical decisions that it needs to take.

Investment decision, financing decision and dividend decisions that play out across stages & are phased out on relevance and impact.

Investment decision (go out and take investments that earn more than the minimum hurdle rate)

è Startup – build those growth assets, invest right and take risks, cash burn will happen. It’s all about the Story. A great CEO would be like Steve Jobs, aka Steve the visionary.

It’s all about the story here, that drives valuation.

Financing decision (debt + equity leverage)

è Young Growth to Mature stage– financing mix of debt & equity, balance of how to fund business and track ROIs. It’s all about the numbers.

è The CEO would be someone like Jeff Bezoz, aka Bob the Builder in its young growth stage.

è In its mature stage, the proverbial CEO would be someone like Satya Nadella or Tim Cook, aka Don the Defender, who might not be visionary like Elon Musk or Steve, but is supremely consistent to keep the rails on the track.

Dividend decision (give it back to the owners, don’t burn it on flailing business, to re-invest elsewhere)

è Decline stage– business floundering, topline stagnating or in negative for a reasonable period, give cash back to the owners, realign on other lines of business that is sustainable.

It’s all about the priorities and hard decisions, not cash burn as that would be insane!

è The proverbial CEO would be someone like Larry the Liquidator, who can wind up laggard business, clean the mess and move on to greenfield or brownfield outcomes quickly!

After being in a certain stage of lifecycle, it is not pragmatic to be young again or become a mature one, too quickly. If you are in chapter 35 of a 40 pages book, you cannot really reinvent the characters and re-plot the journeys.

In my journey of being a talent strategist in the Middle East & Asia for 17+ years, having had a ringside view of Boards and seen the SLT navigating their aspirations, mindset block and idiosyncrasies, the takeaways are varied and intriguing.

Culture, one archaic and held on for decades, is pretty much the anti-thesis of all things transformative and disruptive. More so in large conglomerates, it is always a top-down handing of legacy based discourse. For many longevity often is juxtaposed with sustainable success, sans any evidence of dominant market share, expansion to other countries beyond comfort zone, eye popping profits or high shareholder dividends.

It might just have been self-funded by Group corpus, a heady mix of debt & small equity or plainly an ill-fetched proposal of managing decline. In one of the organizations, I was bewildered when in one of the business review meetings, the SLT in finance took great pride in managing the decline well, from – 40 % to - 25% over a few years, instead of break even & beyond.  More surprisingly, the Group largesse continually followed!

Hubris, nostalgia, legacy ego of not letting go of past laurels all add up to moments of irrational decisions. More so the non-progressive coterie and nexus around the decision makers add to the cloud of insanity. Most Boards do not know what good looks like, as they suffer from lack of good counsel.

Coming to top senior talents, they will eventually be seduced by the firm’s legacy & canvas, but get consumed gradually by the inertia and doggedness of holding on to the past and then scapegoats get curated outside the circle of influence who then get sacrificed at the altar of success, with sheer impunity.

Having hired innumerable CXOs working closely with Boards, no matter what the desirables or wish list for the organization at the time of interviews are, quickly gets muddled for most, once the action begins and hard questions follow.

Going with the flow ensures that the best of talents tread on mediocrity & history repeats itself. The perennial crime of culture fit is when we force fit great talents to a not so good environment, in the name of adaptability & resilience and then the guillotine waits for those who cannot slowly walk the road leading to an eventual dead end! It’s high time we looked at “outside in” rather than “inside out” culture re-coding, that has been the talent bane for 80% of some “great” companies.

Corporates who define their value & positioning well often sustain longer than those who don’t clarify their walk. It’s not the quintessential millennials or Gen Z equation that will determine success forward, it is the acceptance of its status in the life cycle & priorities that becomes the defining moments. A Tech CEO in a conventional sector at its maturity or decline stage, will flounder as is the case of a CEO in a conventional sector trying to be young again in a Tech ecosystem, the contrasting lifecycles are not the best of friends. New lens, no baggage is sometimes great for a positive disruption, but sans empowerment the horse is still at the starting line with the mule!

“All humans are entrepreneurs, not because they should start companies, but because the will to create is encoded in human DNA” – Reid Hoffman

To prove Reid right, it seems a company called Tilray, a cannabis producing company in USA broke the house in the stock exchange, settling the “high” around 627 mn USD in revenues last year, leaving much of its established counterparts in disbelief! And the corporate juggernaut rolls on….

Roy is a curious Talent strategist in Middle East & Asia, host of a global leaders Podcast Series “In Conversation with Roy”, ex columnist with Khaleej Times and a regular speaker at relevant forums and Universities.