Breaking Bad Habits: What Causes Companies To Slip And Fall Apart (And How To Prevent It From Happening!) Complacency, neglecting employee morale, ignoring customer feedback, and financial mismanagement are some of the most common pitfalls.

Even the best companies are capable of letting things slide. Bad habits form, and what was once a successful organization can suddenly become mediocre – or even obsolete. And it's all too easy to ignore the warning signs. To put it another way, it's the boiling frog syndrome – by the time the business realizes it, the situation has already become disastrous. It's too late.

We all know the stories of Blockbuster, Yahoo, and Nokia, which were once giants but were quickly reduced to varying degrees of insignificance. In fact, anyone who was a big Skype user only to find themselves glued to Zoom throughout the pandemic can see how quickly a company can get left behind.

So what usually goes wrong? What are the most common mistakes companies make that land them in the boiling pot? My view is that it is possible to identify a few key areas that all companies need to watch out for. So, in this article, I'll discuss this and also show that we can look at some key aspects of human psychology to help give us a better chance of guiding our companies to continued success and avoiding the pitfalls of slipping into bad habits.

Let's get started.

The problem of complacency

When a company achieves a certain level of success, there is a natural tendency to take the foot off the accelerator. In these cases, management can become insulated from the harsh realities of the market. It's all too easy for departments and individuals to become more focused on protecting their own interests rather than collaborating for the good of the company. This lack of cooperation can lead to inefficiencies, duplication of efforts, and missed opportunities.

When management becomes less vigilant about monitoring performance metrics, assuming that past success will just continue, innovation slows as the company becomes more risk-averse, preferring to stick with what has worked before. But what worked before may not work in the future. Blockbuster's failure to innovate stemmed from a complacent leadership that overvalued the strength of their brand and ignored the changing tides – particularly from Netflix, first with shipping DVDs directly to customers' homes, then streaming. Blockbuster believed their physical stores were enough, but it was a big miscalculation for a brand that had dominated for so long. So, when warning signs are ignored or downplayed, it leads to decisions based on outdated or inaccurate information, ultimately harming the company's long-term viability.

Ignoring customer feedback

Successful companies usually start with a strong focus on customer satisfaction. However, as they grow they may start to ignore customer feedback. This can happen when a company becomes more internally focused, prioritizing processes and systems over customer needs. In other words, it becomes more inward-facing. The issue is that ignoring customer feedback can result in products or services that no longer meet customer expectations, leading to a decline in sales and market share.

During the 1970s and 1980s, Commodore was a name on everyone's lips. But due to management problems and incoming leadership that didn't understand the world of computers, the company started to trail behind competitors in the PC and Mac markets. In 1993, the business lost US$366 million and filed for bankruptcy the following year. This is almost an early prototype for what would later happen to Blackberry and Nokia – two strong companies that failed to innovate, did not listen to customers, and were beaten by the competition.

It's also worth noting that when companies become overly confident in their market position and abilities, they may dismiss valuable feedback not only from customers but also from employees and industry experts. This can be extremely dangerous, as it can mean the organization stagnates due to a lack of innovation.

Related: Everyone's Talking, But Nobody Is Listening: Here's How To Make Yourself Stand Out As A Thought Leader

Neglecting employee morale

We briefly mentioned the problem of not listening to employees, but let's look at that in more detail. Because another common mistake is neglecting employee morale. In the early stages of a company, there is often a strong sense of camaraderie and shared purpose. Total buy-in across the board. However, as companies grow, this can weaken. Management may become distant, communication can break down, and employees may feel undervalued or overworked. This decline in morale can lead to decreased productivity, higher turnover rates, and a loss of institutional knowledge, all of which can severely impact the company's performance.

Not taking care of the finances

This is a big one. Companies may start to cut corners in quality control. A company may also take on too much debt based on the assumption that future growth will be enough to cover it. So, short-term thinking can lead to decisions that are beneficial in the immediate future but detrimental in the long run.

Companies might prioritize quarterly earnings over sustainable growth, cut corners on quality, or neglect long-term strategic planning. While growing sales and expanding market presence are important, an obsession with volume can lead to compromises in quality, customer service, and employee satisfaction. The multinational tech firm Nortel not only failed to innovate as broadband and VoIP technologies emerged but 'misstated' its financial position. While this was not immediately uncovered, the company filed for bankruptcy in 2009. Finances must be in order, or things can slip quickly.

The psychology behind a failing business

Understanding the psychological factors that contribute to business failure is crucial for leaders and managers aiming to avoid common pitfalls. According to the Harvard Business Review, there are several key areas where psychological challenges can undermine a business's success. These factors often stem from deep-seated personal issues and can manifest in various ways within the workplace. Recognizing and addressing these issues can help individuals and organizations foster a healthier, more productive environment.

Here are some of the critical psychological factors that can lead to a failing business:

• Inability to empathize: Many individuals struggle to see issues from other people's perspectives, reflecting a lack of empathy often stemming from insufficient childhood guidance. Empathy is essential for effective interactions with colleagues, managers, customers, and competitors.

• Misunderstanding power dynamics: Confusion about the use and value of power is common, with many equating it to abuse. This can result in either avoiding power or misusing it due to fear of destructiveness. Effective leadership requires a balanced and judicious application of power.
• Struggles with authority: Complex feelings about authority can persist from childhood into adulthood. Some individuals continuously defy authority, while others are overly deferential. Balancing respect for authority with independent thinking is a common challenge.
• Negative self-perception: Low self-esteem, influenced by societal pressures or mild depression, undermines confidence. Building a career on poor self-esteem is like constructing a house on unstable ground. This affects many businesspeople, making it crucial to act effectively while acknowledging personal limitations and setbacks.

The formation of bad habits within companies is a slow and often unnoticed process. Complacency, neglecting employee morale, ignoring customer feedback, and financial mismanagement are some of the most common pitfalls. All these issues contribute to the boiling frog syndrome, where gradual decline goes unnoticed until it reaches a critical point. By then it's too late.

To combat this, companies must remain vigilant, continuously assessing and adjusting their practices to avoid falling into these traps. Recognizing the signs early and taking proactive measures can help prevent a company from ending up in the proverbial boiling pot.

Related: From Hostility To Healing: How To Lead When Angry Mobs Come Knocking At Your Door