There But For a Fortune

There But For a Fortune: How smart decisions produce unintended consequences, by Mark Chussil

First store in the 1980s, hundreds now. Compound annual growth of 70% for the last ten years, the ability to undercut Wal-Mart and Target on price, a glowing article in Business Week in 2006, another on ABC News in May 2008, and a website that says “[our business] significantly impacts whole communities, rejiggers shopping patterns, alters local economies, and sometimes even changes lives for the better.” Heady stuff.

So how do they look halfway through 2008? Here’s what the Wall Street Journal said on July 9: “Steve & Barry’s to File for Chapter 11.” (Update: They did file.)

How do we respond to such a story? When they were flying high, we respected, perhaps envied, maybe even emulated their energy and vision. What do we learn from their dire straits?

We could say it’s the economy, except that, as the Journal said, “[their] deep-discount model was built to thrive in a difficult economic environment.” We could say they made mistakes, except that they appeared to be doing things right for decades. We could say those guys were stupid, except they weren’t. We could say their industry is so verydifferent from ours, except that an awful lot of industries are suffering these days.

Steve & Barry’s isn’t so different from your business and mine, and Steven Shore and Barry Prevor aren’t so different from you and me. They’re smart. They’re educated. They’re professionals. They’re motivated. They’re experienced. They showed guts and commitment, and they succeeded for a long time, and they may continue to succeed. And they, like us, are vulnerable. The question is, vulnerable to what?

It’s easy to say that businesses are brought down by the economy, but that really doesn’t explain much. Why are businesses brought down by the economy, especially businesses designed specifically to thrive in a difficult economic environment? It’s not as though we’ve never had a tough economy before, and it’s not as though there’s rocket science involved. More specifically and more importantly, why are businesses run by smart, educated, successful, motivated, experienced, gutsy, committed people brought down by the economy?

Many business-strategy errors in many industries — we’re going beyond Steve & Barry’s now — happen not because people are stupid or misinformed. On the contrary, they happen because people are smart and well-informed. We suffer the unintended consequences of being smart in the wrong ways and informed about the wrong things. Some examples:

  • A clever business model (smart) may unconsciously rely on a perfect storm of good events to succeed (unintended consequence).
  • A make-it-happen culture of leadership (smart) makes it difficult or even career-dangerous to speak up about danger ahead (unintended consequence)
  • A desire for success and certainty makes us ignore genuine risks; plus, we borrow from the future to make our numbers today.
  • A desire for good (as in accurate and rosy) forecasts and data makes us focus on precision and trend lines, neither of which fit in times of serious change.
  • Affection for growth and market share makes us play chicken with equally desperate competitors and makes us unrealistic about prices.
  • Relying on typical management tools makes us vulnerable to the shortcomings in those tools, such as spreadsheets that take neither competitors nor customers into account.
  • Confidence makes us act and overconfidence makes us fail; it can be hard to distinguish the two, especially when we’re moving fast and believe our strategy is working.

I will expand on those themes in future essays. For now, let’s just note that the good news is that every one of those forces, unlike the economy, is under management’s control. In other words, we can do something about it.

Share This Comment

No Comments