Why Stubborn Ideas Outlive Failed Results
Failure is a teaching tool, but a wrong premise misleads.
Hyman Liebowitz, an immigrant to America, tried to make his way in the family trade, which was manufacturing nails. He struggled, and he struggled, and finally his little nail business got to vast prosperity. His wife said to him, “You are old, Hyman. It’s time to go to Florida and turn the business over to our son.”
So down he went to Florida, turning his business over to the son, but he got weekly financial reports. And he hadn’t been in Florida very long before they turned sharply negative. In fact, they were terrible. So he got on an airplane, and he went back to New Jersey where the factory was. As he left the airport on the way to the factory, he saw one of his company’s billboards lit up. There was Jesus, spread out on the cross. And under it was a big caption: “They Used Liebowitz’s Nails.”
So he stormed into the factory and said, “You dumb son! What do you think you’re doing? It took me 50 years to create this business!”
“Papa,” the son said, “Trust me. I will fix it.”
So back he went to Florida, and while he was in Florida, he got more reports, and the results kept getting worse. So he got on the airplane again. Left the airport, looked up at the billboard, and now there’s a vacant cross. And lo and behold, Jesus is crumpled on the ground under the cross. And underneath, the caption said, “They Didn’t Use Liebowitz’s Nails.”
This is one of my favorite parables, once told by the late, great Charlie Munger. It illustrates how ridiculous it can look to the outside when someone clings to a failed idea.1 But despite this parable, it’s amazing how quickly you can find examples of this, especially in the small, family business world.
We had a joke when I entered the family business after college. As I was getting up to speed, I would ask a ton of questions. None more so than, “Why do we do X this way?” And almost universally, the answer was, “Because we’ve always done it this way.” As a young’un2, I found that reply incredibly frustrating. But over time it actually became funny. Because my dad (who also went through the same conversations with his dad years earlier) and the other managers in the business realized immediately how ridiculous the answer was.
Now, there are often reasons why you should stick to certain processes and ideas. Usually, you can articulate what those reasons are. And in a small business, it’s even harder to walk away from old ideas because those ideas did, at one time, work. Small business leaders are often emotionally invested in the way we do things right now. We remember effort, not outcomes. And we mistake familiarity for validity. Quite often, we over-appraise effort and under-appraise evidence. We see that something no longer works, but we just can’t get the nerve up to change what we believe is a core part of our business.
This can take many forms: it can be a product line that no longer sells well but you just won’t let it go because it helped you grow to the place you are now. It can be customers you insist on continuing to serve, despite the poor or even negative margins you get with those customers.3 It can be suppliers you defend out of long-term loyalty, even though their business policies may be nowhere near what they were five or ten years ago.
We all do it. I’ve done it. My dad did it. His dad did it. And I’m sure you’ve done it as well. Sometimes this stubbornness can be laudable. Other times, it’s damaging. What’s important to remember, though, is that it’s not a failure of character. It’s simply a part of the process of trying to sustain growth over the years.
Going back to the Liebowitz parable, the father is not stupid, and the son isn’t malicious. The son firmly believes he is correct in his marketing plan. And the father is obviously correct in his analysis of the situation.4 The mistake isn’t incompetence. It’s misplaced confidence.
We all make mistakes, and we all fail at various levels as business leaders. If the premise or the direction is correct, then failures are not only acceptable, but helpful to learn from. Where this becomes problematic is when you’re misunderstanding the situation in the first place. Brand inertia, legacy thinking, and confusing past success with present relevance are all ways to turn a company’s growth upside down. The issue with Hyman’s son wasn’t that he framed the billboard incorrectly. It’s that he shouldn’t have been utilizing the crucifixion in his advertising in the first place.
What fascinates me about this legacy inertia, for lack of a better term, is that the more intelligent you are, the more vulnerable you tend to be to this issue. Intelligence increases your ability to rationalize your own mistakes. I’ve seen brilliant businesspeople make horrendous mistakes because they completely misunderstood the situation. Oftentimes, it’s because they had seen such great past success that they naturally assumed what they were doing was right. Again, it wasn’t about smarts. It was about being stuck in a past mindset. What helped you grow from 0 to 100 doesn’t necessarily help you grow from 100 to 1,000. Different stages of growth require different strategies. Past wins create blind spots.
Small businesses often treat startup tactics as a permanent strategy. What worked when you were a nascent company trying to get off the ground does not always continue to work once you’re established and growing. Leaders also tend to confuse scrappiness and grit with scalability. You can work as hard as you want, but if you’re focusing on the wrong strategy, it’s just a waste of air. Think about the founder who insists on approving every order because that’s what he did when he was first getting started. The owner who refuses to delegate pricing because that’s the task he’s done for the past 30 years. Or the company that still interacts with customers like it’s desperate for business, long after it isn’t.
As a leader, confidence can often reduce your willingness to revisit your assumptions. If it’s worked in the past, it’s easy to assume it will work in the present or the future. But what’s important is to frame each issue as questions with consequences. What does this product/idea/strategy cost every year that it stays alive? What else could you do with the attention it consumes? What else could you do with the capital it consumes? What revenue/profit are you missing out on by not trying something new?
The goal in business isn’t to honor what worked. It’s to stay honest about what works now. Letting go of an old idea is not admitting failure. You can update your beliefs while still respecting and honoring the past and the decisions that got you to where you are. Past success deserves respect, but it does not deserve control.
Not to mention the danger of turning over a successful immigrant-built business to the next generation, but that hits a bit close to home, so I’ll just skip over it.
Yeah, I said it.
I’m looking at some very specific people here, and you know who you are. Or maybe you don’t and that’s the problem.
A great business lesson: don’t insult 2.3 billion members of the world population in your advertising.