Part 3

Habit #6: They Underestimate Obstacles Part of the allure of being a CEO is the opportunity to espouse a vision. Yet, when CEOs become so enamoured of their vision, they often overlook or underestimate the difficulty of actually getting there. And when it turns out that the obstacles they casually waved aside are more troublesome than they anticipated, these CEOs have a habit of plunging full-steam into the abyss. For example, when Webvan's core business was racking up huge losses, CEO George Shaheen was busy expanding those operations at an awesome rate. Why don't CEOs in this situation re-evaluate their course of action, or at least hold back for a while until it becomes clearer whether their policies will work? Some feel an enormous need to be right in every important decision they make, because if they admit to being fallible, their position as CEO might seem precarious. Once a CEO admits that he or she made the wrong call, there will always be people who say the CEO wasn't up to the job. These unrealistic expectations make it exceedingly hard for a CEO to pull back from any chosen course of action, which not surprisingly causes them to push that much harder. That's why leaders at Iridium and Motorola kept investing billions of dollars to launch satellites even after it had become apparent that land-based cell phones were a better alternative. Warning Sign: Excessive hype One of the things we learned from the Internet bubble is the danger of hype, which can hide problems or mask intentions that, if known, would lead people to make different decisions. Simply stated: When something sounds too good to be true…it usually is. One of the best signs of a company relying on hype is the missed milestone. Whenever a company announces that its quarterly earnings are below forecast, the market reacts negatively to the news. Another important warning sign to look out for is when companies avoid looking at persuasive market data. When Barneys was planning its doomed geographic expansion, someone suggested that it do a market study to make sure that its offerings could work outside New York. CEO Bob Pressman thought the idea was ludicrous. "Market studies?" he exclaimed, incredulously. "Why do we have to do market studies? We're Barneys!" Habit #7: They stubbornly rely on what worked for them in the past Many CEOs on their way to becoming spectacularly unsuccessful accelerate their company's decline by reverting to what they regard as tried-and-true methods. In their desire to make the most of what they regard as their core strengths, they cling to a static business model. They insist on providing a product to a market that no longer exists, or they fail to consider innovations in areas other than those that made the company successful in the past. Instead of considering a range of options that fit new circumstances, they use their own careers as the only point of reference and do the things that made them successful in the past. For example, when Jill Barad was trying to promote educational software at Mattel, she used the promotional techniques that had been effective for her when she was promoting Barbie dolls, despite the fact that software is not distributed or bought the way dolls are.

Frequently, CEOs who fall prey to this habit owe their careers to some "defining moment," a critical decision or policy choice that resulted in their most notable success. It's usually the one thing that they're most known for and the thing that gets them all of their subsequent jobs. The problem is that after people have had the experience of that defining moment, if they become the CEO of a large company, they allow their defining moment to define the company as well-no matter how unrealistic it has become.

Warning Sign: Constantly referring to what worked in the past When CEOs continually use the same model or repeatedly make the same decision, despite its inappropriateness, it can lead to significant failure. This type of thinking is often evident in the comments of senior executives who focus on similarities across situations while ignoring the sometimes more momentous differences.

Take the case of Quaker Oats' acquisition of Snapple. Quaker paid $1. 7 billion for Snapple, mistakenly assuming that the drink would be another smash hit like Gatorade. The beverage division president said things such as, "We have an excellent sales and marketing team here at Gatorade. We believe we do know how to build brands; we do know how to advance Snapple as well as Gatorade to the next level." Unfortunately, they didn't realize that Snapple was not a traditional mass-market beverage, but a "quirky, cult" drink. What's more, while Gatorade was distributed via a warehouse system, Snapple relied on family-run distributorships that had little interest in co-operating with Quaker. In 1997, Quaker sold Snapple for a paltry $300 million.

These seven habits of spectacularly unsuccessful people are powerful reminders of how organizational leaders are not only instruments of growth and success, but sometimes also architects of failure. That each of the habits has elements that are valuable for leaders only serves to point out how vigilant people who enter a leader's orbit must be, whether they are other executives, board members, lower-level managers and employees, regulators, or even suppliers, customers and competitors. In small doses, each of the habits can be part of a winning formula, but when executives overdose, the habits can quickly become toxic.