What Detroit’s Bankruptcy and Your Company Have In Common

Big news last week was that the City of Detroit filed for bankruptcy.  Made national headlines as being the largest municipality in the history of America to do so – yet, I think most people, nationally, are really not surprised.  For decades Detroit has had a horrible reputation as being the murder capital of the world, corrupt politicians, GM going under and the government rescuing it, and everything that is wrong with unions.  Besides a few shining moments from local professional sports teams, there are really never any positive national stories coming out of Detroit.   Fast Company believed Detroit was so far beyond repair, and they were probably right, that Detroit should be bulldozed and turned into farm land.  Basically, hit the reset button.

As you know, I’m a core problem kind of person.  I believe at the heart of most issues, there is a core problem that has created all the issues your are facing.  Most organizations, like Detroit and your own companies, don’t like solving the core problem – you like solving all the little symptoms that the core problem is/has created.  People catch the common cold and take cold medicine – yet study after study show that washing your hands is really the only thing that is going to keep you getting the cold, and those same studies show most people still don’t wash their hands often enough or long enough to not catch the cold.  We like solving symptoms!  It gives us little wins and makes us feel successful. Solving core problems takes a lot of work, usually takes unpopular difficult decisions and many times the success isn’t immediately seen.

So what is Detroit’s core problem?  That is really up for debate – but it’s core Detroit is a victim of its own success. The great Automotive Industry that gave so much to the City of Detroit ended up being its downfall.  Relying solely and completely on one industry bankrupted Detroit.  Everything else is a symptom of time and function.  Rely on one product, service, etc. long enough and eventually the life cycle of that product or service will catch up with you.  The city is just a victim of that life cycle. Here’s some facts from Morgan Housel at  The Motley Fool:

“But the largest driver of Detroit’s demise is a simple, startling fact: the city’s population declined 65% in the last six decades. No city can survive such an exodus; it’s actually amazing Detroit’s finances lasted this long.

The Motor City was home to 1.9 million people in 1950, at the time nearly identical in size to Los Angeles. Today, 700,000 inhabit Detroit, or less than a fifth the size of L.A. That works out to 2.2 people leaving Detroit every hour, 24 hours a day, for the last 63 years.

If the number of people who left Detroit in the last sixty years formed their own city, it would be the nation’s ninth largest, ahead of Dallas, Texas…

Detroit shows how organizations that can’t adapt eventually crumble. Before it was a technology hub, San Francisco relied on shipping, and before that, gold mining. Before New York was the financial capital of the world, it was the garment capital of the world…Detroit was overwhelmingly reliant on the auto industry. When the fate of three companies — General Motors (NYSE: GM), Ford (NYSE: F), and Chrysler — turned, so went the entire city’s fate. Evan Soltas of Bloomberg wrote, “Detroit’s dependence on cars wasn’t exactly the problem. It was dependence itself. Cities should never go all in on any industry, cars or otherwise. It didn’t realize that until it was too late.”

Detroit can easily be your company.  Don’t kid yourself into thinking it can’t be – that is another major mistake generations of Detroit’s leaders made.  “We are different” “Everyone will always need cars.”  “Everyone will always need Facebook.” “Everyone will always need $125 running shoes.” Everyone will always need…you fill in the blank.  Diversification is the only thing that can truly mitigate your risk – and it’s one of those ‘core’ problems at almost every company.  It’s tough because we are told to ‘be the best at what you do’ and it’s hard being the best at many things and be diversified.  We can’t save Detroit – it needs to be reborn – but you can save your company – focus on core problems and stop solving symptoms.

 

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