# Dead Companies Walking **Scott Fearon** | [[Prediction]]  --- > "How did you go bankrupt? Two ways. Gradually and then suddenly." — Hemingway Corporate collapse isn't random or mysterious. Scott Fearon, a hedge fund manager who made his career shorting doomed companies, argues that most failures follow familiar patterns of managerial blindness, denial, and misplaced confidence. The same psychological traps repeat across industries and decades. > "It's okay to be wrong; it's not okay to stay wrong." Leaders don't just miss signals—they cling to false beliefs, misread markets, or ignore deep structural shifts until it's too late. Competitive drive, whilst admired, can become a liability when leaders try to will success rather than face facts. > "Failure is one business trend that never goes out of style." Disasters can be avoided through honest diagnosis, humility, and adaptability. Leadership that connects with employees, customers, and reality remains the strongest defence. --- ## Core Ideas ### [[The Six Common Mistakes of Failing Leaders]] These patterns recur with predictable regularity. **Learning only from the recent past.** Overweighting the last decade blinds leaders to older cycles and lessons. What worked in the last boom becomes mistaken for a timeless rule. **Over-reliance on a formula.** What worked before is mistaken for a permanent competitive advantage. Leaders keep applying the old playbook even as the game changes. **Misreading or alienating customers.** Confusing personal taste with market demand. Success depends on truly understanding customer needs, not executive preferences. Alienating or ignoring core buyers is one of the fastest routes to irrelevance. **Falling victim to manias.** Bubbles are constant and recurring, not rare historical events. It's easy to see past manias; much harder to recognise ones unfolding in real time. Herd behaviour and short-term optimism lead even seasoned investors astray. **Ignoring tectonic shifts.** Clinging to industries being permanently disrupted (Blockbuster versus streaming). Shifts in taste or technology can't be outcompeted through willpower. **Detachment from operations.** Leaders lose touch with employees and ground-level realities. Employee morale and management competence are decisive in whether firms survive crises. --- ## Key Insights **Management teams often see trouble last, and their bias is almost always toward overconfidence.** Competitive drive becomes a liability—leaders try to will success rather than face facts. The cardinal rule: it's okay to be wrong; it's not okay to stay wrong. Even when facing collapse, executives convince themselves "this time is different." **Investors and leaders alike overvalue spreadsheets and undervalue the people driving outcomes.** Employee morale and management competence are often decisive. > "The only irreplaceable capital an organization possesses is the knowledge and ability of its people." — Andrew Carnegie Overconfidence in projections and underattention to people quality is a fatal combination. **Short-selling involves infinite risk, so short-sellers must be especially rigorous.** They often see structural weakness before others and provide a valuable counterweight to hype. Their trades eventually provide buy-side demand, making them less of an enemy than many CEOs believe. Short-sellers force discipline on markets by betting against overvaluation and fraud. **Success depends on understanding what customers actually need, not what you think they need.** Shifts in taste or technology (streaming, smartphones, e-commerce) can't be wished away. Companies that alienate core customers or ignore near-customers lose relevance gradually, then suddenly. **Many firms collapse for predictable reasons, but disasters can be avoided.** Honest diagnosis, humility, and adaptability can stave off decline. Leadership that connects with employees, customers, and reality remains the strongest defence. --- ## Connects To - [[7 Powers]] - Companies without any of the seven Powers eventually fail; Fearon's targets have none - [[Better, Simpler Strategy]] - Failing companies can't raise WTP or lower WTS; they're stuck in commoditised competition - [[The Fifth Discipline]] - Event-level thinking (reacting to crises) dooms companies; pattern/structure thinking is required - [[Alchemy]] - Companies fail when they mistake customer "logic" for actual behaviour - [[Algorithms to Live By]] - Explore/exploit applies to industry life cycles; knowing when to abandon failing strategies matters --- ## Final Thought Corporate collapse is less a mystery than a consequence of human error. The same psychological traps—denial, hubris, short-termism, misreading customers—repeat across industries and decades. For investors, recognising these signs is profitable. For leaders, it's a call to humility: success requires not just vision, but willingness to confront uncomfortable truths, adapt to change, and stay grounded in the people and customers who ultimately decide a company's fate. The hardest lesson: competitive drive—that relentless belief that you can outwork or outwit reality—becomes toxic when it prevents you from seeing that the game has changed. The companies that survive aren't the ones that fight hardest; they're the ones that stay connected to reality and adapt when the evidence demands it.