Why a company–or a candidacy–fails

On Tuesday, what once seemed inevitable could become clearly unattainable.
Some polls and most pundits suggest that for Hillary Clinton’s presidential candidacy, it’s all over but the counting. Former President Bill Clinton concedes his wife must win in Texas and Ohio to remain in the race. And even winning those states-unless the margins are unexpectedly large-might not be enough to slow Barack Obama’s momentum.
What happened? How did a sure thing unravel?
Over the past few weeks I’ve read a number of excellent accounts of the Clinton campaign’s woes-in particular, ones written by Joshua Green of The Atlantic, E.J. Dionne Jr. of the Washington Post and several New York Times staffers. All describe the campaign’s strategic failings, miscalculations, management flaws and financial travails.
And this thought struck me: Her candidacy exhibits many of the telltale signs of a failed business.
No one’s authored a definitive list of reasons why businesses fail. But management experts seem to agree a handful of factors determine the fate of most companies. I think these factors say a lot about why the Clinton candidacy is struggling to survive:
–Know your own business. A November 1994 Fortune article on why firms fail started with this stunning fact: Many corporate leaders don’t understand the fundamentals of their own business. What is its core expertise, its key drivers of success?
Joshua Green writes that “arrogance led directly to the idea that Clinton could simply project an air of inevitability and be assured her party’s nomination.” As for a bottom-line theme or message for voters, the campaign has had none-or rather, it has had many, blurring its focus.
–Know your market. Any business that’s out of touch with its customers is doomed. For much of her campaign, Clinton seems to have been stuck in the past. She was late to recognize voters’ intense desire for change and particularly slow to grasp the new realities of political fundraising; whereas Clinton has relied on large donors, Obama has developed a vast network of small contributors and the ability to mobilize them quickly online.
–Never lose sight of cash flow. Clinton has raised prodigious amounts of cash-more than $130 million all told. But many bankrupt firms also were great revenue generators; they made the fatal error of ignoring cash flow. A New York Times analysis of Clinton’s latest campaign finance report shows extravagant spending on everything from pricey hotels to party platters in Iowa (where there was little to celebrate) to an army of consultants. By failing to manage spending wisely, she ran short just when she most needed cash on hand. (An analysis by the Center for Responsive Politics shows that in the key month of January, Clinton spent $27.6 million while raising only $18.9 million; Obama spent $29.7 million-while drumming up $36 million.)
–Don’t underestimate the competition. In a June 2006 interview with Clinton, I jokingly asked if she would like to declare her candidacy for president in our pages. “Well, I am running for re-election-loudly and clearly,” she replied with a laugh. In his Atlantic piece, Green writes that “Clinton and (now ousted campaign manager Patti) Solis Doyle insisted that no one so much as mention the possibility of a White House bid until after she’d been re-elected to the Senate-a move insiders now concede was a serious tactical flaw that allowed Barack Obama’s campaign to take off unchallenged.” Worse yet, she failed to grasp how serious a threat he posed. Which brings us to …
–Learn from your mistakes–quickly. Three years after its article on why businesses fail, Fortune published another piece with a range of successful CEOs talking about their smartest mistake. Everyone makes poor, even dumb decisions. Only some know how to recognize their errors–fast-and learn from them. By all accounts, Clinton valued Solis Doyle for her loyalty, not her competence, and replaced her only after Obama took the lead in the delegate count; likewise, she stuck with the “inevitability” strategy far too long.
Management thinker Peter Drucker once wrote that “a company beset by malaise and steady deterioration suffers from something far more serious than inefficiencies.” Its “business theory”–a set of assumptions regarding customers, competitors and itself-“has become obsolete.”
Yet, Drucker added, “even in a very sick company there are islands of strength.” To survive, its leaders must locate those islands and build a new theory based on them. Can Clinton do that? We’ll see on Tuesday.
And what about her rival’s fast-growing “business”? Though it’s hard not to be dazzled by Obama Inc., an interesting cautionary note was posted this week by Gabor Steingart, a correspondent for the German magazine Der Spiegel.
“When I hear him speak,” Steingart writes, “I have to think of the crazy days of the New Economy. … Wild promises seemed to be the most valuable currency in circulation. Profits? No big deal! Experience? Unnecessary! Realism? More of an obstacle than anything else. While some entrepreneurs undoubtedly had realistic business models and administrative talent, most of them were simply peddling ideas.”
Steingart’s conclusion? “If democracy functions only half as well as the market economy, the Obama bubble will burst. The burning question is: When?”

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02/29/08 (C) Rochester Business Journal