Today’s Chapter is based on the book “The Ten Commandments for Business Failure” by Donald R. Keough.
Donald R. Keough was an American businessman best known for his long tenure at The Coca-Cola Company, where he served as president, chief operating officer, and director from 1981 until his retirement in 1993. He played a major role in one of the company’s most notable events: the introduction and rapid retraction of “New Coke” in 1985.
Here’s what I learned:
Take Risks!
“People who don’t take risks generally make about two big mistakes a year. People who do take risks generally make about two big mistakes a year.”
— Peter Drucker
Donald Keough’s long and illustrious career at Coca-Cola, where he served as president and COO, offers profound insights into what makes a company thrive in a competitive landscape. One of the most critical lessons from his tenure is the necessity of embracing risk rather than shying away from it. Keough’s experiences highlight how stagnation can lead to downfall, and how calculated risks propelled Coca-Cola to global dominance.
As a matter of fact, Keough recognized that success often makes companies complacent, causing them to shy away from new challenges and innovations, a posture that inevitably leads to decline. He explains that “It’s reasonable to think that because when you achieve something, even very little, there is the great temptation to quit taking risks. It’s human nature. I’ve got something. Why risk it? Who knows what’s on the other side of the mountain? Don’t go there!”
In his book, Keough illustrates various examples of companies that succumbed to “the major diseases of success”: complacency, arrogance, and the paralysis that comes from avoiding risk. Notably, he talks about the story of Xerox who “had a least a five-year head start over its future rivals. But the box guys at headquarters failed to take a risk. That, as I said, is one of the major diseases of success. Two others are complacency and arrogance.“
“Over time, many, many successful companies have failed to take important risks at critical points, and they have paid a price. Some have merely stumbled and found later redemption, but quite a few have not only fallen but disappeared. In the 1980s alone, 230 companies disappeared from the Fortune 500. In fact, only 16 of the 100 largest companies that were around in the early 1900s are still with us. Who knows how many of the tombstones in the graveyard of capitalism should bear the epitaph “Here lies a company that died risk free.””
— Donald R. Keough
At Coca‑Cola, Keough cultivated the sense that success didn’t mean safety but instead required vigilance and a willingness to explore new things. He accepted mistakes and failures as part of the innovation process, arguing that the capacity to try, while knowing that many experiments will fail, is critical to long‑term vitality.
He points to creative environments like Apple’s where ambitious efforts produced both high‑profile missteps and transformative innovations; the failures were the price of continued relevance. In fact, he explains that “In business, you can make a good argument for mistakes like Steve Jobs’s Lisa or Power MacCube because the highly creative Apple environment that spawned them also produced big winners like iPod and iPhone. You can even justify those mistakes that have become the folkloric case studies in how-not-to-do-it courses in business schools all over the country, such as the Edsel or 45 rpm records or even New Coke. These failures, for all the valuable lessons that they teach us in hindsight about management blunders, are simply risks that just didn’t work out. Such miscalculations, costly though they might be at the time, are part of the price of staying in business.”
“In fact, if a company never has a failure, I submit that their management is probably not discontented enough to justify their salaries.”
— Donald R. Keough
Keough reminds me of what we have previously learned from Peter Kiewit, who in order for his company to avoid getting fat, lazy and complacent, always made sure to take calculated risks. As he once said, “There is no progress without risk. You can’t hope to develop your maximum potential without taking some risks.”
By consistently asking his employees to complete projects at the lowest cost possible, Kiewit was always pushing them to seek innovation and continual improvement in order to respect the projected budget. One of Kiewit’s famous aphorism in the company was that he was always “pleased, but not satisfied” which became a company’s motto.
“Just as a rock is not shaken by a strong or sudden gust of wind, neither should we be affected by praise or success. We must not be satisfied with our past accomplishments, and we should make every effort possible to improve and expand our operations-but only in an orderly and beneficial manner. I believe that a company cannot stand still for long—either it goes ahead or slides back.”
— Peter Kiewit
Even if encouraging taking risks may lead employees to commit more mistakes, this did not bother Kiewit as learning from mistakes can also be considered an improvement. As Scott Jr., an executive from Kiewit, once said, “As a company, we’re tolerant. We’re quite tolerant of mistakes, and we’re very tolerant of people who make mistakes. Just don’t go out and make the same ones all the time.”
Talk to Employees
“Our greatest asset, and the key to our success, is our people.“
— Isadore Sharp
From Donald Keough’s tenure at Coca-Cola, we learn the vital role of staying connected to employees, customers, and realities on the ground. As a leader, he actively combated isolation by engaging directly with the workforce and fostering an inclusive environment. He argues that isolation from the ground breeds ignorance and arrogance. As such, he believes that leaders who cultivate direct lines to customers and employees are less likely to be surprised by problems.
Keough explains that “one of the traits of many of the legendary builders of business was that they had an uncanny ability to know and relate to their employees at every level. Dwayne Wallace, who built the Cessna Aircraft Company through the 1960s and 1970s, was reputed to be able to walk the assembly line of the Wichita plant and not only know every one of about three thousand employees by name but also know something about their families. This hands-on, personal touch is no doubt impossible in a global operation today, but it is certainly a worthy and attainable goal within a fairly large headquarters staff.”
Similarly, Keough would often visit regions, get off the scheduled tour and visit ordinary outlets, and ask employees and local managers directly what they saw and felt. This willingness to get uncomfortable, to hear dissenting voices, and to privilege field observations over filtered reports helped him avoid the false reassurance that comes from polished presentations and confirmatory briefings.
“When I would visit parts of the Coca‑Cola world, the local managers would often meet me at the airport and take me to the three local customers where Coke was a huge success. But I wanted to see stores that were not on the list and would sometimes just stop the car and jump out to go into an outlet. I also wanted to sit down and have direct conversations with employees. I’d say, “Here’s what’s on my mind. What’s on your mind?” I think I usually got pretty straight answers because I’d often hear the same concerns from a number of people.”
— Donald R. Keough
As such, Keough mentions that it is extremely important for business leaders to be humble enough to value disagreement. In fact, he praises leaders who surround themselves with smart people willing to argue, and he celebrates management teams that balance strengths and offset weaknesses. There is a moral and practical case for humility: it preserves trust, it surfaces blind spots, and it enables better decisions.
Keough reiterates that “one of the reasons I am a strong believer in management teams. When teams of leaders complement and balance one another (as in the cases of Warren Buffett and Charlie Munger at Berkshire Hathaway, Tom Murphy and Dan Burke at CapCities, or Frank Wells and Michael Eisner at Disney), then one person’s shortcomings can often be offset by another’s strengths. But when there is only room for one dominant personality in the room, then watch out because what he or she is that’s what the company is; and if he or she isn’t enough, then the company is doomed.”
“If you’ve got some lofty title on your door, the crowd of those who will disagree with you thins out pretty rapidly.”
— Donald R. Keough
This concept of being close with frontline employees is the main reason why Ken Iverson at Nucor believed in decentralization, since the frontline employees were the one that were closest to the problems and by consequence, have the best innovative ideas. He once said, “That is, by the people closest to where the work actually gets done. Those businesses must tell people on the front lines to “trust your instincts.” And businesses that tell their people to “trust your instincts” generally should be decentralized. A decentralized structure pushes the power to set strategy, spend money, make decisions, and create policies out toward the marketplace. It promotes local autonomy.“
Similarly to Keough, Iverson believed it was primordial for managers to be maintain close contact with their employees. As he explained, “Managers are supposed to do what’s best for the business. And what’s best is to remember we’re all just people. Managers don’t need or deserve special treatment. We’re not more important than other employees. And we aren’t better than anyone else. We just have a different job to do. Mainly, that job is to help the people you manage to accomplish extraordinary things.”
“That’s the main reason we’ve tried to keep our divisions small. When a business grows beyond 400 or 500 people, it’s hard for management and employees to stay connected. I don’t order our managers to keep in close contact with their employees. But I do nag them. I say, “Andrew Carnegie was a financier. He could afford to treat people like peasants. We’re managers. We can’t.” They may not appreciate my nagging, but I do it with their interests in mind.“
— Ken Iverson
Take Time To Think
“All of humanity’s problems stem from man’s inability to sit quietly in a room alone.”
— Blaise Pascal
Donald Keough insists that thinking is an active, cultivated discipline that leaders must protect in order to succeed in business. He mentions that “If you want to fail, don’t take time to think. If you want to succeed, take lots of time to think. Thinking is the best investment you’ll ever make in your company, in your own career, in your life.”
This is especially true in the modern age where there is a rush of instant responses and unfiltered information flow from emails, calls and data that overwhelm the soul of judgment. He argues that less but well‑considered input often produces better decisions than an unending stream of metrics that obscures the right questions to ask.
As he explains, “We live in the data age. Data are coming to us endlessly, 24/ 7. More and more data coming at us, faster and faster, from all sides. According to one estimate, more than sixty billion e‑mails are sent around the world every day. By the time you read this, the estimates will be in the trillions. Not to mention telephone calls, which are now in such stratospheric numbers that any guess as to the volume is meaningless. We communicate and communicate—responding instantly like automatons pouring out a stream of consciousness that just adds more data to the flow—without any evaluation, without anyone really sitting back, shutting the door, turning off all the bells and whistles and in a few moments of quiet reflection doing some serious thinking.“
Keough shares compelling evidence that too much information can worsen judgment. Similarly, he also believes that data taken out of context can cause misjudgment. A perfect example of this was the infamous introduction of the New Coke in 1985. Mountains of taste‑test data convinced management that sweetness was the issue for Pepsi gaining market shares on Coca-Cola, leading to a decision that ignored the product’s cultural and emotional dimensions. The misstep was costly, but Keough frames it as an instructive failure because it revealed the centrality of asking the right questions and the importance of considering qualitative dimensions alongside quantitative tests.
“In the United States, Pepsi sales were increasing at the time, so the Coca‑Cola leadership, and particularly leaders of the bottler community, were looking for reasons why Pepsi sales were doing a bit better than ours in supermarkets. And U.S. Coca‑Cola management began looking for reasons. It was not advertising expenditures or distribution issues, so the problem had to be something else. That led them to focus on the nearly one‑hundred‑year‑old product itself. Researchers asked the question: Was there some specific difference that could be pinpointed and corrected? And so two hundred thousand taste tests were conducted and proved beyond a doubt that it was a sweetness issue. It turned out that sweetness, of course, was not the problem at all. The data masked the reality. All the research in the world doesn’t mean anything if you aren’t asking the right questions. The reality was that there needed to be more intense excitement in the iconic brand. New Coke, in its own way, helped to do that, but it was a painful lesson.“
— Donald R. Keough
This reminds me of the concept of “being on one’s business rather than in it” that we have previously learned from Paul Orfalea at Kinko’s. By relying on others and delegating tasks, Orfalea had a lot more time to think about the company’s big picture. He explains that “Being “on” your business and your life means having enough detachment every day that you are constantly reassessing your direction, thinking creatively about your overall strategy, and scrutinizing your competitors’ tactics. It means relying on others to attend to most of the details of the day-to-day operations and employing a system of checks to verify that you are on the right track.”
As such, by being on your business rather than in your business, you have a lot more time to sit back and think creatively about where you can improve on your business. In Orfalea’s case, he would take this extra time “to scrutinize our competitors’ tactics and concoct strategies for beating them. It gave me a chance to mull over the innovations coworkers in different stores had created. It gave me perspective.”
“Staying “on” your business and not “in” it is a question of timeframe. Ask yourself where you are right now. Are you living in the past, the present, or the future? One of the most important things you carry with you is your frame of reference. Being constantly busy means you are too wedded to the past. When you’re that busy, you can’t see the present, and forget about the future.”
— Paul Orfalea
Beyond the Book
Read "Taking Risks" by Farnam Street
Read "Evaluating Information: Find the Signal in the Noise" by Farnam Street
Read "The Noise Bottleneck: When More Information is Harmful" by Farnam Street
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