The Entrepreneur vs. The Professional Manager

. 3 min read

By Distinguished Professor Robert M. Donnelly Does anyone learn anything from the product life cycle? Apparently not, based upon the perpetual boom-to-bust cycle of many iconic brands. The all too familiar roller coaster ride from entrepreneurial idea to predictable failure seems to be lost on modern professional managers and CEOs. It continues to amaze me how everyone is so surprised when an iconic brand disappears when it was obvious for so long that it would. The Toys-R-Us and Sears brands are the latest to fall victim to the predictable slippery slope to irrelevance. How their demise was not obvious to so many is a mystery to me as they were both in an irreversible coma years ago. In 2005 (over 10 years ago) Sears had 2% of all retail sales, and declined to less than 0.3% prior to its death. It no longer had a relevant unique value proposition for consumers, obviously unbeknownst to management during this period of declining sales and profits. Once the largest retailer in America and creator of the first catalog of almost everything anyone could want, Sears in its day was the manual version of what is now Amazon. Sears remained the largest retailer in the United States for many years. But now the remaining 60,000 employees have lost their jobs. At Toys-R-Us 30,000 employees were terminated with no compensation or benefits. Competitors like Walmart, Kohl’s, Amazon, and others stole Sears customers away with more attractive proposals years ago. Sears had failed to earn a profit since 2010. Over the last years its stores were dirty, less than well stocked, and poorly organized. From 2005 to 2010, Sears spent $5 Billion of their precious cash on stock buybacks resulting in preserving the price per share in the short run, but in the long run depriving the company of money that could have been used for upgrading operations and bailing out its underfunded pension plan. A feckless management made numerous basic mistakes like: taking customers for granted, an absentee CEO, selling off their prosperous financial services operations, completely missing the trend to online, and disposing of good brands like Land’s End, Kenmore, and the Craftsman tool brand. As business continued to decline, stores were closed, and about 200,000 positions were eliminated over this time period. All of these negative indicators were blatantly obvious to consumers, but apparently oblivious to management. Sears exhibited the classic death cycle of an iconic brand by trying to cut expenses in every imaginable way to get out of the red, but succeeded only in alienating more and more customers in the process. What lessons are there to be learned from the demise of Sears and Toys-R-Us? The most important lesson is that if the customer gets to the future before you do – they will leave you behind. In reality, any company is in the customer business. Life and business is about change. The product life cycle is simple in that entrepreneurs create a niche with a faster, better, and cheaper solution to consumers problems and grow that to close to its natural limits and usually sell their solution. Typically, professional managers take over the business and being risk averse and not entrepreneurial cannot see the natural evolution of the changes taking place in the market until in the case of Sears and many other iconic brands it’s too late as by then customers have already moved on to other brands that now resonate with their changing requirements. Robert M. Donnelly, a Distinguished Professor at Rushmore, is an author, educator, and brand builder. His book: Personal Brand Building for Life. is available on Amazon.