The 3 ‘enemies within’ that will destroy your business

Most businesses get off to a rocky start.

I know mine did.

I founded my firm—a business school to which I later added a venture-capital business—in 1992. Our startup capital was just $8,000. For the first few years we operated on a shoestring budget, even renting the classrooms we needed on an hourly basis to keep costs down! The 1997 Asian Financial Crisis was a near-death experience. It was only around 1999, after eight long years, that the business settled down and started generating steady profits.

I couldn’t have been happier. Being free of stress at last was the best feeling. Our sales were rising 20% to 30% per year. Benefiting from a different positioning to the competition, the business school grew to be No. 1 in Japan by size, while the VC arm was Japan’s largest independent VC in fund-size terms too.

We had managed to conquer all our “external enemies”—our business competitors, the harsh economic climate, meager cash flow, and so on. But I realized that there was a new band of enemies—this time internal, psychological ones—waiting around the corner. These “enemies within” may be the most dangerous ones of all.

My management team and I now needed to be extra-careful. With a lot of the external pressures gone, there was a very real risk of us letting ourselves go.

I’ve known plenty of entrepreneurs whose businesses blew up right after they achieved the success they’d worked so hard for.

If you want to avoid a blow up and stay on course for long-term success, you need to stay alert and watch out for the three enemies within, as below.

1. ARROGANCE; “I’m better than you”

The most obvious danger of being successful is becoming complacent or even arrogant. You believe your own hype and stop listening to other people. Talented co-managers who don’t like being ignored walk away, weakening your executive bench. Because you’re convinced that you know best, you also become insensitive to changes in the market place.

Successful or not, you should always be modest, caring and courteous. Never make the mistake of thinking you’re too good to listen to advice and criticism from other people.

2. EXTRAVAGANCE: “Show them the money”

Life wasn’t easy when I was building up my firm. Not being able to pay the hospital bill when my second son was born is still a painful memory. It’s no wonder that plenty of entrepreneurs go a bit crazy when their firms finally turn the corner. Suddenly having cash to burn, they start splashing out on Rolls-Royces and private jets for themselves. At the same time, they lose their sense of proportion on the business side. They see modest-sized investments as ridiculous. Eager for all their actions to be on a heroic scale, they start speculating with huge sums.

This is highly dangerous. No matter how well you are doing, you should hang on to your original frugal mentality. Don’t start squandering money on fancy toys for yourself or showy, luxurious offices for your firm. Continue to treat every dollar with as much respect as you did back when they were in short supply.

3. TIMIDITY: “Erring on the side of safety”

Success earns you money and status. That means that, unlike when you were on the way up, you’ve suddenly got something to lose. There is an overwhelming temptation to stay safely within your comfort zone, shirk difficult challenges and become chronically risk-averse. This is to court disaster. Before you know it, your technology will be out of date and your competitors will have pulled ahead because they are still willing to take risks, unlike you. Bored by the lack of innovation and excitement your firms offers, talented employees will leave in droves.

Companies have to keep evolving and pushing forward to survive and prosper. Avoiding risk is the greatest risk of all. The only alternative to continuous innovation is slow death. At my business school, we have innovated by expanding into online education, full-time English-language MBAs, and a line of apps for business students.

The older and bigger a business becomes, the harder it is to control the three “enemies within” of arrogance, extravagance and timidity. That’s the reason why at our company retreats we always set aside a good chunk of time to make sure that we are keeping these self-destructive attitudes/behaviours at bay.

This article is published in collaboration with LinkedIn. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Yoshito Hori is the Founder and President of GLOBIS.

Image: Pedestrians cross a road at Tokyo’s business district. REUTERS/Yuya Shino.