The Wall Street Journal recently published a fascinating column on the best-performing stocks of the last 30 years. One intriguing feature of these enormous success stories is that so many of them are little-known companies in ordinary, sometimes downright boring industries: railroads, health insurance, back-office automation. The runaway winner, with a staggering stock price growth of 107,099% since 1985, was a truly obscure outfit called Balchem Corp., which makes flavorings and nutritional additives for animal feed — not exactly Google or Disney.
But the more important part of the story, the lesson that applies to all kinds of companies in all sorts of fields, is that every one of these star performers faced at least one “near-death experience” during the course of its long-term success. I don’t mean a few quarters of sluggish growth or a one-time product flop, but a radical shift in its market, a major technology disruption, or a disastrous strategic bet that threatened the company’s very existence. In the case of Balchem, a huge investment in a new coating technology was so slow to pay off that the company lost 53% of its market value in less than 13 months. Ultimately, it took “patience, grit, and good luck” to transform Balchem from a basket case to a “superstock.”
As I reflected on the 30-year performance of these superstocks, I thought back to an event I helped organize 20 years ago, when I was editing Fast Company. In an effort to understand the new logic of change and the emerging rules of success, we convened a conference around the theme “How Do You Overthrow a Successful Company?” It was not a gathering of internet geeks and startup founders who were eager to take on the corporate establishment. It was a gathering of executives, strategists, and change agents from illustrious big companies (Xerox, Levi Strauss, Roche, Citigroup) who sensed that there were massive shifts on the horizon and who were determined to reckon with those shifts and embrace a new generation of business models, a new era of technology and communications, a new level of customer expectations and sophistication.
In other words, they were leaders who wanted their companies to win big in fast-moving times without a near-death experience. It was a great idea for a conference, yet it amounted to a hill of beans. Xerox has tried its best, but its long-term struggles have led to a recently announced breakup and restructuring. As a company and a brand, Levi Strauss went from being an American icon to fighting to stay relevant. Citigroup got caught up in the financial crisis and has never been the same.
Why is it so hard for companies and leaders to embrace change and break with the past without a near-death experience? The answer, I believe, has to do with what innovation strategist Cynthia Barton Rabe dubbed the “paradox of expertise.” Too many companies and leaders, and often the best companies and the most successful leaders, struggle with the frustrating reality that the more deeply immersed you are in a market, a product category, or a technology, the harder it becomes to open your mind to new business models that may reshape that market or exciting ways to leapfrog that technology. Past results may not be the enemy of subsequent breakthroughs, but they can constrain your capacity to grasp the future.
“When it comes to innovation,” she argued, “the same hard-won experience, best practices, and processes that are the cornerstones of an organization’s success may be more like millstones that threaten to sink it. Said another way, the weight of what we know, especially what we collectively ‘know,’ kills innovation….Why can knowledge and experience be so lethal to innovation? Because when we become expert, we often trade our ‘what if’ flights of fancy for the grounded reality of ‘what is.’”
I wish I had a five-point program to help leaders overcome the paradox of expertise, or a set of foolproof strategies that would inspire transformational results independent of a dire strategic crisis. Alas, the wildly successful performance of The Wall Street Journal’s superstocks, and the painful struggles of those well-intentioned leaders from that Fast Company conference, suggests that simple answers may be an exercise in wishful thinking. The more things change, it seems, the more the challenges of leading change remain the same. It’s still worth trying to “overthrow” your successful company, but don’t be surprised if long-term prosperity requires confronting its mortality.
William C. Taylor is cofounder of Fast Company magazine. His forthcoming book is Simply Brilliant: How Great Organizations Do Ordinary Things in Extraordinary Ways. Follow him on Twitter at @williamctaylor.