Alan Wurtzel is the former CEO of Circuit City, America’s late, great electronics superstore. He is also the author of a fabulous new book called Good to Great to Gone: The 60 Year Rise and Fall of Circuit City
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Alan, does failure make someone better?
I think so. I think people learn from their mistakes, and I think I learned more when Circuit City was in deep trouble shortly after I became CEO than I did when it was riding high and going great guns.
Let’s talk about what you learned that can be used by others. I’m in the media space and we’re undergoing our own transformation right now, our own disruption. You have distilled some lessons in your book called “habits of mind” that are particularly apt for my audience. One is “be humble, run scared.” What do you mean by that?
Well, I think that’s probably the most important one. The book is about strategy and making business strategy and making good or bad business strategy and how that happens.
The most important thing about humility is that the world is always changing and businesses need to change to be current and to be relevant to their customers. And when they stop being humble and running scared, they tend to stop tracking their customers and thinking about “what do I need to do next to capture the changes that are occurring in the world and continue to make the business relevant to customers?”
How do you balance that with the obligation that many in an industry feel to crow about the strengths of their industry? “Yeah. Okay, Pandora is a big deal,” some say “but radio reaches almost a hundred percent of everybody,” and while that is technically true, that argument can also foster a certain ignorance of the momentum and direction of change.
Well, the relevant habit of mind in that case – it’s not in the book – is “Don’t drink your own whiskey.”
That should have been in the book.
And the point is, sure you can think you’re in a great industry and things are going well and you want to promote either yourself or your company or your industry, but that doesn’t mean you have to believe your own propaganda.
You need to understand the weaknesses of your position. And you may be doing great but you have to be humble and understand and run scared because that can change at any minute.
Well, from my CEO standpoint I think it’s great to have debate. I didn’t want a yes-man on my board and I didn’t want yes-men in the company. I wanted their best independent thinking.
The way I ran the company was to have everyone reporting to me meet once a month for an executive committee meeting which is where the big decisions were made. We had an agenda. It would take all day, sometimes into the evening, to go through everything and we would keep talking until we reach consensus. If we didn’t reach consensus I’d put it down for the next month and the next month until the point that I believed we were repeating ourselves. Once there were no new ideas, no new information, then somebody has to make the decision. That was the CEO’s responsibility.
So in that process in every case the dissenting ideas always had some merit, and we very often modified our thinking, adjusted our plans, took account of the objections in going forward so that going forward was done in a better way.
One of your other habits of mind is “curiosity sustains the cat.” Can you talk about what you mean there?
Sure. Strategic decision-making is the art and practice of aligning the strengths of your organization, the financial strengths, the management strengths, the talents within the organization, to the outside world that is always changing. Customer tastes are changing. Customer types are changing. The population is getting older. Things are getting more this or more that, and you need to be curious about what’s happening in the outside world. So you pick up early warning signals that demographics or customer habits are changing.
Circuit City was set in its ways in serving older customers. In the ‘80s and early ‘90s young kids, teenage kids, had money in their pockets and they were starting to be the major purchasers of consumer items. We decided not to carry videogames. We decided not to emphasize CD’s. Our competition did that. They were more curious. They were more adventurous in trying to understand what the new customer wanted and they were serving that customer need. Whereas Circuit City was serving yesterday’s customer. And within six or eight years the kids were no longer coming to us anymore or the next generation because we were old fuddy-duddies and competitors were more connected to the changing needs of a changing marketplace.
That’s a very relevant point for broadcasting because, as you know, for formats like talk radio, for example, the audience is older, many of the hosts are older, a lot of the content is older, a lot of the appeal is older, and the question is, are people who are 25 today going to wake up and tune in to that content one day, and the answer is probably no, right?
Right. But if we had been more curious we would have worked harder to understand that trend and maybe made different decisions.
There’s a lot of data out there highlighting trends – there’s no shortage of trend data. But what I see lacking is an understanding of what to do in the presence of those trends. Knowing that young people want to download mp3’s is one thing, for example, but knowing strategically what I do with that is something altogether different. How do you cross that divide?
I believe one of the habits of mind in the book is to make a roadmap, to know where you’re going.
We did strategic planning every other year. Then you look back and say, “oh, the plans I made two years ago, they didn’t work out” – and they never do. It can be better or worse but they never work out exactly as the plan predicted. And then you ask “why?” Now there’s enough time to begin to understand why they didn’t work out the way you thought and to study that and to learn from that.
Strategic planning the way we did it was a three-month exercise in which the CEO spends a very significant amount of time personally trying to understand what’s happening in the world with economics, with demographics, with competition, with new products, with new customers, new geography. All these things require attention that can’t be delegated. The CEO has to understand it and make the decisions. And if you do it that way, then I think you don’t fall into the trap you’re talking about because getting a lot of statistics is one thing, understanding that data is the key.
Agreed. The final habit of mind on your list is: “focus on the future.” That seems like something that everyone should be doing automatically, doesn’t it?
They should, but I don’t think that happens in the real world. Too many businesses are focused on the next quarter’s earnings, next year’s earnings, and not on their earnings three to five years down the road.
The American car industry was the icon of global business and General Motors, Ford, and Chrysler all went through terrible times. They lacked humility because they didn’t focus on the future. They thought they had the answers. They weren’t humble. They didn’t run scared. They believed that Detroit is the greatest and those Japanese that we beat in World War II, how could they know better what the American customer wanted? How could they build a better automobile? They weren’t curious, they didn’t study, they weren’t humble, and that led to their demise.
How do you focus on the future when you’ve got your boss on your tail about this week’s revenue, let alone this month or this quarter? How do you focus on the future when Wall Street is on your back?
Let’s start with Wall Street because that’s a very pernicious influence. I think you’ve got to tell Wall Street, “I’m running this business, not you. I welcome your input. I’m happy to tell you what we’re doing that’s appropriate, but I’m making decisions for the long run and for the shareholders. And the shareholders I care about it are not the ones who flip in and out of our stock every 30 seconds with high speed trading. We’re interested in the permanent, long term shareholder base and what’s in their best interests and how will they be better off three to five years down the road.”
So you just have to ignore a lot of the Wall Street input that wants you to do something to change the price stock this afternoon or next week. That’s the basic answer.
So what about your boss? You know your boss has expectations for you, right?
You either have to try to educate your boss and get on the same page or leave and find a new boss.
And if your organization isn’t focused on the long term, it’s probably not going to be here in the long term.
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