Tuesday, July 14, 2009


Napoleon Barrigan, the owner of Dial-A-Matress watched his company file for chapter 11. According to this WSJ article he largely blamed bringing in a cadre of professional managers who brought with them cultures that were different than the one that existed. The existing culture was marked by a collaborative inclusive style that included everyone in making the business better. The new management additions had an exclusive, we know better style that wound up accelerating the demise of the company.

Napoleon admits that there were other errors. The company opened retail outlets when its profits were mainly derived from phone and internet sales. Some of the retail outlets were in poor locations which were selected because of low rents. Further, the company expanded too quickly and couldn't profitably manage the growth.

The importance of a company's culture is often ignored by the heads of businesses. For them, culture doesn't count. Maybe it is because it can't be put on a spread sheet. In the end, these managers feel the pain of their company's underperformance.

This reminds me of a story. I once was hired by a private equity shop owned by a former Presidential economic adivsor. He had purchased two companies in the paper industry with the plan to merge the two companies. His theory was "one plus one would equal three". He had leveraged the combined companies pretty highly since he believed the results together would be much better.

The results were not better. In fact, it turned out the "one plus one equaled one"!! We went out to visit the company and within two days found the main reason for the underperformance. The two companies had two very different cultures and there was friction everywhere. Virtually every aspect of the business was underperforming.

When I disclosed this to the private equity owner, he didn't believe me. He said it couldn't be a culture issue and things were not as bad as I said. In fact, he said I was exaggerating the situation to make more work for us. I laughed and told him, more work was the last thing we needed. We left for a week. He called me back and said, it was as bad as I said it was. It took two years to straighten things out.

Don't ever ignore the culture.

Cheers, Mike

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