The Primary Reason Businesses Fail: Focusing on the Wrong Bottom Line

Do this, and your business will fail.

Posted May 01, 2010

Which businesses are failing? Let's look at today's headlines. Goldman Sachs is being sued by the SEC and its reputation and stock are plummeting. British Petroleum is responsible for what could be one of the world's greatest ecological disasters. Health insurer Wellpoint (Anthem/Blue Cross) is leading a crash of healthcare stocks because it attempted to gouge customers with rate hikes. What do all of these companies have in common? Their trouble was brought on by a focus on a single bottom line - profits.

For organizations and leaders to succeed in today's world, it is critical that they look beyond the simple bottom line of profits. From the early admonishment of management guru, Peter Drucker, to the teachings of enlightened leadership experts of today, it is imperative that organizations look beyond the narrow and misguided focus on the singular bottom line of profits and look more broadly at what is commonly referred to as the "triple bottom line" of profits, people, and planet.

Businesses need to balance and simultaneously make sure that they are: (1) Profitable, you can't stay in business without making money, but you also can't succeed if you don't pay attention to the bottom line of (2) "people." That means that businesses that don't value their employees and care for them and their welfare, will not be able to be profitable for long as they lose (or abuse) their talent. "People" also refers to customers. If you develop a reputation for "burning" your customers (witness Toyota, which has a lot of work to do to re-build customer loyalty and trust), you will fail in the long run.

That brings us to (3) "planet." This is best illustrated by the British Petroleum oil spill in the Gulf of Mexico. Without a focus on how businesses impact the environment, and protecting the fragile resources of the planet, the result is a zero-sum game where perhaps one player will win (the oil company's profits), but everyone else (fishing industries, the ecosystem, the government's costs of cleanup) fails.

The most misguided thinking of all time is the focus on the single bottom line -- that businesses are all about profits. That leads to short term gains, but long term failure.