Fit To Bust: How great companies fail

4 out of 5 stars.

Tim Phillips, Kogan Page, $29.95

Here’s one for the bedside table: 36, self-contained, easy-to-read, short chapters about where things went wrong in business. When I couldn’t face the long novel, I’d read a few before drifting off.

Spotting what hasn’t worked has become a small industry over the last five years. It’s not just as a result of the global financial crisis. It began when people started noticing that companies that were labelled “built to last” were not lasting. Even Jim Collins, who wrote a best seller of the same name eventually had to follow it up with a book on why great companies fail.

Phillips doesn’t try to distill too many grand principles out of the stories in Fit to Bust. He just tells you what happened in each particular case. There are cheeky comments and the odd theme, but the main one seems to be “stuff happens”.

That “stuff” can be a tumultuous event that couldn’t be predicted, a la Black Swan, but most of the time it’s unfortunate decision-making, inappropriate strategy or the build up hubris around previous success.

Some examples stem from corrupt practices. The opening story is Bernie Madoff’s ponzi scheme. But even here, it was built on uncritical support from a lot of gullible investors, many of whom should have known better.

Alternatively, one of the closing chapters looks at the collapse of Long Term Capital Management (LTCM). Here, the investment model itself was developed by two respected academics who should have known better. Both Nobel Laureates no less. But they offered the same thing as Madoff – a return that was always positive.

In the end, it wasn’t, but not before it had been backed by some of the biggest names on Wall Street.

In between, there are case studies in all sorts of industries, ranging from accountancy to motorcars.

There’s also the problem of celebrity CEOs. The book quotes a warning from the American Management Association – they display the features of a cult: “they inspire devotion, have charismatic leadership and separate you from your community”.

That’s almost identical to Fortune magazine’s criteria for Best Places to Work: A sense of purpose, inspiring leadership and knockout facilities. Thereafter, Phillips quotes celebrity failures from Iceland to Albania. 

Overall, this book is a warning. Beware grand notions of business principles. Unforeseen events can kill any great business. On the flipside, it is often a fortuitous turn of events that underwrites success rather than widely espoused business theory. Don’t mistake it for a robust winning formula.