Insights

Worthy of Westeros: why businesses are like empires

Civilisations rise and fall. From the Mayans to the Romans, history has proven that size and resources are no protection from the forces of scale and complexity. Businesses are the same. Particularly given today’s feverish rate of innovation and development, recent business history is littered with tales of household giants which have fallen by the wayside: Borders, Lehman Brothers, Polaroid, Enron.

 

And perhaps that’s no surprise. Businesses share plenty with empires and tribes. They are both groups of people aligned around a common goal and powered by ambition and the will to succeed. They have figureheads and managers, people gifted with leadership and strategy skills and yet who can also be all too human and fallible. And with time, they mature; coming to share a language, culture and way of life – and then get suspicious of other people’s ways of doing things. Sound familiar?

But some businesses clearly do endure –in some cases their execs are happy to play a very long game indeed. SoftBank’s Masayoshi Son, for example, is well known for having a 300-year strategy. How can history over aeons help business today?

What empires can teach entrepreneurs

Empires teach us that size leads to complexity. Big companies grow complex administrations and can lose the ability to react quickly to upstarts and market challenges. Blockbuster, Woolworths, Kodak, Nokia’s mobile business and RIM were all leaders in their respective industries, had the Triple-A reputations and deep pockets to change direction, but they simply didn’t have the culture, agility or willpower to do so. In a startup, everyone is aligned and full of optimism and determination to succeed but as the organisation scales, this initial euphoria can be replaced with complacency and bureaucracy.

Leaders can also lose touch with their people. Take PKR, once the leading European poker website. It went from 5m registered users in 2012 to shuttering in May 2017. Poker is certainly a competitive space with many players (no pun intended). But it’s also lucrative – so what went wrong? PKR consistently invested in fancier interfaces – when customers actually wanted something very different: simplicity on mobile. In a business where the experience is the only real differentiator, failing to listen to customers was a big mistake.

As a business grows, it also becomes more susceptible to externalities. As with an established empire, it may have deeper pockets, but it’s much harder to change course. When the UK’s fifth largest airline, Monarch, filed for bankruptcy, it led to Britain’s largest peacetime repatriation to bring over 100,000 travellers home. The key reason for the company’s collapse was overexposure to North African holiday destinations which have dramatically collapsed in the light of recent terror attacks.

Is collapse inevitable?

No – but it demands constant reinvention. The internet era has ratcheted up the pace of change and made it ever harder for large businesses to compete.

First, big players can leverage safe businesses to support new activities. Verizon, for example, is a distinctly ‘old school’ company. It is using money from an old but highly profitable wireless infrastructure business model to buy diversification in order to survive (including picking up the deflated but highly experienced AOL and Yahoo).

Second, ambitious businesses can buy in the skills they need to stay on top of their core game. Coty, the spectacularly successful beauty products business (and Renovata Partners client) has grown at breathtaking pace in the past six years: its iconic brands include Calvin Klein, Gucci, Hugo Boss, Marc Jacobs, Max Factor, Rimmel and Wella; and its purchase of Procter & Gamble’s beauty brands for $12.5B was the largest cosmetics acquisition in history. Beauty is a brand marketing business, so in 2015 Coty bought Beamly, the standout transatlantic digital marketing business. It was a landmark deal: Beamly had a reputation for outperforming the market in customer engagement by 500%+, and by bringing Beamly in-house yet at arms’ length, Coty got access to the best digital marketers in the world whilst leaving them free to learn from the rest of the market.

Finally – and hardest of all- is reinvention. Startups call it pivoting – but that’s because starting almost from scratch is easy when you’re three folks in a WeWork. It’s different when you’re a giant. Apple is surely the best example of a business empire losing its grip and then rediscovering its mojo. Apple executed several giant but forward-thinking reinventions: partnering with Microsoft in 1997, making products desirable by focusing on the intersection of engineering and design, and, of course, creating the iPhone. These required extraordinary product vision and execution – that counterintuitive vision of Steve Jobs, Jony Ive et al. that’s required to ask, “But what if we did things differently?”

Be a little bit startup…

I think the truth is this. The old ways of working – join a company and work for 25 years keeping the ship steady- is gone. Companies in the first internet era (1995-2010) discovered business cycles of five to eight years. Today’s startups are working to a cycle of 18 months or less. Constant transformation is the norm.

And employees are mercenary too – they want to work for winners. They don’t stay in one place for life, instead seeking the best culture and remuneration for their skills and the most exciting challenges.

The smartest leaders therefore bring a little of the startup mentality to established businesses: like the greatest leaders in history, they never quite hang up their boots. A great CEO is capable of doing a shift on the shop floor – just like things were in the startup days. To be a leader, you need a tonne of curiosity to constantly question the status quo; and to connect with the people and ecosystems which will help you understand the way the world is changing around you. You must be prepared to take risks; to constantly throw the dice for your next evolution. You must communicate each throw of the dice effectively to give your forces a clear purpose and vision to believe in. Otherwise, they’ll be off to the opposition in a heartbeat.