Losing, perhaps frequently and badly, could be one of the most important steps in taking the lead in business and in life

Just about everyone has experienced failure and defeat, and none of us like it when that happens. Yet losing may be an essential precursor to winning. In a world where change is the only constant, those who believe they are already well ahead of the rest have little incentive to question what they do — let alone change it. The result is complacency. People cling to what they know — what brought them success in the past — long past the point where it ceases to be the basis for future achievements.

I started along this train of thought when I read an article in last Friday’s New York Times business section entitled “For Americans, a Bit of the Swagger Is Gone.” The writer was lamenting recent figures that suggest America’s national self-confidence is slipping badly, perhaps due to foreign policy setbacks and the gradual realization that America is far from popular in many parts of the world — even amongst past and present allies.

What the writer, Floyd Norris, focused on was the world of finance and financial engineering. Charting past periods when American self-confidence fell to low levels, Norris elaborated on the theme of political uncertainty and national dissension, coupled with economic problems, as the basis for peoples’ failing belief in American leadership.

It is not just the decline in home prices and the increase in mortgage defaults. Nor is the seemingly interminable war in Iraq the major cause, although it, too, is probably playing a role. Instead, it is evidence that America is no longer a leader, or perhaps even competent, in one area in which we believed it excelled.

That area is finance. Only months ago, American financial institutions were pre-eminent in the world economy. We were the country that invented all the new financial products and that made lots of money from them. It was our investment banks that were called upon to advise companies and governments in other countries, and then to arrange the financing they needed.

Now that reputation lies in tatters.

Complacency is a constant peril of leadership

It’s tough, in business as in the rest of life, for someone who has risen to an acknowledged position of preeminence to accept that what lead to their success may not be capable of helping them to stay at the top.

Times change. New competitors arise. The ones at the top of the heap become the “targets” everyone else is seeking to throw down from their pedestals.

These upcoming competitors have every reason to want to change the basis of the game in their favor. In their hunger to win, they often create new ways of operating: new product areas, new business models, new patterns of thinking and behaving, new fashions among consumers.

Meanwhile, the current leaders go on the defensive, trying to maintain whatever they see as the basis for their past success. They cling to old ways of operating, existing business models, and “tried and true” approaches. They know how to succeed at what they have already done. Change the rules of the game and they lose that advantage.

History contains endless examples of this process in action

On the basis that no one can stop eventual change, this seems to be a very risky, not to say suicidal, strategy. By clinging to what worked in the past, you leave it to others to set the basis for future competition. In time, of course, change will be forced on you; but by then, those who most quickly attuned themselves to the new patterns will have established a lead it may be impossible to overhaul.

In business, this is so common that no one should be blind to the process. Many of the great corporate names of the past — and their products and brands that commanded the market — have disappeared, swept away by changes that they resisted until they were overwhelmed. There was a time when American car makers dominated their home market with gas-guzzling trucks and SUVs; when Pan American Airlines was a world leader; when American corporations set business standards and the rest of the world was happy to take what they were given.

Going back a little earlier, Great Britain really did rule the waves, with a fleet more powerful and better armed than anything else afloat. France, under Napoleon, had an army that, for a while, defeated everything sent against it. Spain, in the sixteenth century, was the dominant European power; and so on, back to the Roman Empire and beyond.

Staying ahead always means giving up what got you there

In every case, what seems to have happened is two-fold:

• The dominant leader became complacent and failed to realize change was essential, until it was too late.
• Their period of dominance taught potential competitors how best to beat them.

If this is so, change has to be undertaken on a voluntary basis, if you are to stay ahead; and begun long before it becomes critical. You have to be willing to give up on whatever acted as the basis for your past success. Instead of clinging to what is tried-and-true, you must drop it in favor of fresh approaches and riskier options.

You also need a wake-up call

What is needed to start this process is a wake-up call; something to alert the individual or the organization thattheir leadership is in danger of slipping away from them. That something is failure.

In sport, you often see an acknowledged champion going through a period when success seems to elude them. They are beaten by new opponents and seem to have lost their touch. For those who become the true “greats” of their sport, however, this doesn’t mark the end of a career. Rather is serves as a wake-up call to go back and re-think their game. The new generation of opponents has learned how to beat them at what they once did best. Only by changing — by creating themselves and their game afresh — can they once again come to the top. Tiger Woods did that quite recently. After a rough patch, he seems once again to be unbeatable. What did he do? He re-forged his game and gave up what once worked so well.

Failure sets the basis for the next success

Without failure, complacency almost always sets in and starts the process of decline. Without the willingness to acknowledge failure and then change as a result, clinging to past glories ensures a more rapid descent into mediocrity or worse.

Too many leaders, it seems to me, cling to what brought them to the top for most of their careers. By doing so, they set up the basis for their own failure and that of the businesses they lead. When disaster looms, it’s a natural human response to wish to return to how things were before — natural, but wrong. If you ever succeeded in going back, you’d arrive in a place that could no longer work in your favor. You would make yourself obsolete and vulnerable to collapse.

What is required for success is first to acknowledge the failure, then see it as a wake-up call for change, steadfastly refuse to try to go back to what was, and fix your target instead on what is coming to be.

Unless today’s banks and other financial leaders do this, tomorrow’s financial markets will be dominated by someone else. Unless American industry does it, the same will happen. Unless you do this in your own life, your life tomorrow is also likely to be less successful than it is today.

Failure hurts, but it can still be your friend.

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