I am often asked about the books I read. I refer to several of them during the classes I teach and thought I would periodically share my thoughts on some of these in this blog. I am going to start this out by talking about one of my favorites – How the Mighty Fall: And Why Some Companies Never Give In by Jim Collins. This book is a must read for any business owner. The companies referred to in this book are massive companies, everything he talks about applies to your company as well.
In this book, Collins looks at companies that at one time were mainstays in the US economy – companies like Zenith, Circuit City, A&P and more. Today, these companies are gone. What makes companies who were so big and successful for years and yet, ultimately fail. He indicates that when companies start their downfall, they go through five stages. These are:
- Stage 1 – Hubris Born of Success
- Stage 2 – Undisciplined Pursuit of More
- Stage 3 – Denial of Risk and Peril
- Stage 4 – Grasping for Salvation
- Stage 5 – Capitulation to Irrelevance or Death
In here, he shares a story of Bill Lazier, a professor at Stanford Graduate School of Business. In his course on small business management, he would press students on why companies are failing. As they came up with different ideas like marketing, strategy, brand and more, he would keep pushing them. He would end up the exercise by turning and writing on the board the word
C A S H!
He would follow this up with the following:
“Never forget, you pay your bills with cash. You can be profitable and bankrupt. In the entrepreneurial phase, leaders struggle just to get enough cash to become self-sustaining, but as an organization becomes big and successful, cash consciousness atrophies. Leaders in successful companies worry more about earnings. But organizations do not die from lack of earnings. They die from a lack of cash.
We need to understand the cash position in our company. There are two main causes of company failures. Improper labor pricing and poor cash flow. I have worked with company after company in the last several years who turned themselves around and started making money but still have major financial problems (or even failure) as a result of the demands on cash flow. Remember, your P & L is not the same as your cash flow.
It’s a Quick Read
One of the nice things about this book is that Collins packs a lot of information in very few pages. You don’t have to be a speed reader to get through this in short order. As I said earlier, this book is a must read for any contractor. Put it on your reading list today.
Have you read How the Mighty Fall? Let us know your thoughts on it.