Notorious Business Blunders
Failure is OK – to a point.
A slew of business executives will tell you the lessons they learned from their biggest goof-ups, and educators are increasingly developing curriculums that help students learn by failing. But often, failure is just that. For businesses, a big failure is often near-fatal, if not fatal.
We looked at some of the biggest business failures and tried to find the key lesson that could be taken away from the debacle. Here’s what we learned.
Motorola Loses the Phone Market
What happened: After releasing its Razr in 2005, Motorola made the No. 1 and No. 2 selling mobile phones in the world. Then, for reasons largely within its control, Motorola lost $4.3 billion between 2007 and 2009, as well as its perch as the world’s leading mobile phone maker.
“The emergence of Android technology was devastating for Motorola and the lackadaisical pace at which they climbed on the 3G bandwagon made them too slow to make the best of the surge,” said career coach and business analyst Michael D. Brown of Fresh Passion Institute. “By the time Motorola was waking up from its innovative slumber trying to catch up with the Q series of smartphones, the bell had rung and they were unforgivably late for the party.”
Lesson: Don’t fall victim to what Bowen calls “predictive short sightedness.” Many businesses “don’t have ‘meteorologists’ on board who appropriately understand the business weather to know when and where the next opportunity is going to rain,” Bowen said. “Therefore, they are embarrassingly ill-equipped and rather than riding the waves of change, they are drowning in the tides.”
LEGO Gets Too Technical
What happened: It’s hard to believe that the successful maker of plastic bricks for generations of kids was once on the verge of bankruptcy. But that’s exactly where the company found itself in the late 1990s and early 2000s after a series of disappointing product launches. Anyone remember “Fiber Optic Technic Kit” or “Primo,” a building set intended for babies? Didn’t think so.
Lowey Bundy Sichol, author of the “From an Idea to…” series of books, said LEGO moved away from its system of play, lost touch with its customers and hired young “innovators” as its engineers rather than AFOLs – adult fans of LEGO. They also lost control of costs. Fiber Optic Technic Kits, for example, contained parts that cost more to produce than what the entire set was sold for.
Lesson: Not all failure has to be fatal.
“What LEGO learned from these failures was to go back to its roots of a play-based building model, one that fit into the LEGO system,” Sichol said. “Business analyst Michael McQueen called LEGO's near-death experience ‘the best thing that ever happened to it.’"
New Coke Angers Classic Coke Lovers
What happened: Arguably one of the biggest business failures of the 20th century, Coca-Cola messed with a good thing and launched a new formula for its namesake beverage on April 23, 1985. Seventy-nine days later, Coca-Cola retreated and returned the original formula to store shelves and fountains. But not before consumer outrage, complete with loyal Coke drinkers pouring out gallons of the new formula in public demonstrations outside Coke’s headquarters in Atlanta.
“We set out to change the dynamics of sugar colas in the United States, and we did exactly that — albeit not in the way we had planned,” then chairman and chief executive officer Roberto Goizueta said in 1995.
Lesson: Always learn from your mistakes.
Today, Coke executives say the New Coke debacle has helped fuel its push to create — and launch — new beverages.
Blockbuster Fails to Buy Netflix
What happened: Blockbuster developed an up-to-the-minute inventory system which allowed it to squeeze out regional chains and mom-and-pop video rental stores to become the dominant player in the video rental market. But it went from innovator to bankruptcy when it failed to see the threat posed by Netflix. Blockbuster reportedly turned down multiple chances to buy Netflix, which was offering to handle its online distribution.
Blockbuster didn’t launch its own DVD-by-mail service until 2005, six full years after Netflix had launched. By that time, it was too late for Blockbuster and Netflix was already looking ahead to the next disruption in the industry and plotting how to dominate then then almost-unheard of streaming video market.
DISH bought Blockbuster out of bankruptcy, and today the company exists as Blockbuster @Home, a package of 15 movie channels and a library with thousands of titles.
Lesson: Don’t delay when it’s time to call an audible on your business plan.
Kodak Loses on Digital
What happened: When photographs relied on film, Kodak was the industry leader and widely seen an innovator. But the company grew complacent and relied on the fat — but quickly diminishing — profits it made from selling film and film processing papers and chemicals.
It’s a familiar story, but Kodak’s version offers a sad twist: many of its own engineers saw the threat that digital photography presented and urged executives to invest more in making the company the leader and innovator in digital. Those warnings and pleas went unheard, and Kodak watched its core business all but disappear while conceding the digital market to other players.
Lesson: Listen to the people who made you successful in the first place.
Borders Partners with Amazon
What happened: Like Blockbuster and movies, Borders developed sophisticated inventory systems to better track sales and predict trends. But as Amazon rose to prominence, Borders stuck to its core business model. Not only was it locked into long-term brick-and-mortar leases, it continued to build new stores.
Then, in an effort to catch up, it made a deal with the devil and allowed Amazon to act as its online distributor. The thinking was it could continue to focus on its brick-and-mortar business. The end result is Borders ceased to exist.
Lesson: Don’t bury your head in the sand when your core business model is threatened.
Apple Maps Bugs Out
What happened: Maybe Apple is too big to fail, but in 2012 its launch of Apple Maps was a major setback to the behemoth. Apple kicked Google Maps off its iOS platform and replaced it with its own version. The product was notoriously buggy, which gave the tech press fodder as it went after a company that had portrayed itself as the perfectionist in developing tech products.
It could have been an even bigger failure for Apple if it hadn’t decided to admit its mistake. Within a few months, it had brought Google Maps back into its App Store.
Lesson: It’s okay to admit someone else does something better than you if you can find a way to partner with them.
Schlitz Gets Gooey
What happened: Schlitz had made beer the same way for 100 years and was in the upper echelon of the most recognizable American brewers. Then in 1976 CEO Robert Uihlein decided to mess with that recipe for success.
Uihlein proposed massive shifts in how Schlitz made its beer. He cut the brewing time from 40 to 15 days and replaced barley malt with corn syrup. Fearing proposed regulations that would require brewers to put a more detailed list of ingredients on packages, he also switched stabilizers. The end result was a beer that tasted awful and had a thick sediment that many drinkers compared to mucous. Schlitz was forced to secretly recall 10 million bottles of the beer, but the damage to its brand had already been done.
Lesson: If it ain’t broke, don’t fix it.
Ford Botches the Edsel
What happened: Microsoft founder Bill Gates calls the Edsel his favorite case study in business failures. Indeed, the name is nearly synonymous with bad business ideas. The car was launched in the 1958 model year after Ford poured $400 million into its design and production.
You can’t find a 1960 Edsel because the line was discontinued after the 1958 model year. Among the problems with the car were oil leaks, sticking hoods and trunks that wouldn't open. But the biggest problem was that Ford executives didn’t listen to their own research – research that showed the middle class Americans the car was being marketed to were looking for smaller, more manageable cars.
“It wasn't because the car was overly poll-tested; it was because Ford's executives only pretended to be acting on what the polls said,” Gates wrote on his blog. "Although the Edsel was supposed to be advertised, and otherwise promoted, strictly on the basis of preferences expressed in polls, some old-fashioned snake-oil selling methods, intuitive rather than scientific, crept in."
Lesson: Listen to your research. If you spend all that money on trying to assess the market, you need to use that research and not let it be dismissed by executives’ egos.
Qwikster Hastily Retreats
What happened: Netflix has done few things wrong since its 1998 launch, but Qwikster was the biggest blunder in the company’s history. In 2011, after experimenting with an on-demand streaming service, CEO Reed Hastings ignored the advice of others within the company and pushed forward with a plan to split Netflix’s DVD distribution service and its streaming service, which would become the new company, Qwikster.
That meant customers that wanted both DVD and streaming service would have to pay two separate subscription fees. The backlash was instantaneous, and Netflix’s retreat from the plan was almost as quick. Within two weeks, Netflix had scrapped plans for Qwikster.
Unfortunately, for Netflix, recovering from Qwikster would take much longer. It would be two years before its stock price reached the high it hit when it first announced the plan. (Investors, like Netflix, only saw the additional revenue and didn’t predict the customer backlash, causing the momentary spike in Netflix shares after Qwikster was announced).
Lesson: Know your customers and, while you’re at it, treat them well. Netflix failed to figure that its customers would be savvy enough to figure out they were being fleeced for the sake of shareholders.
Excite.com Spurns the Google Guys
What happened: In 1999, Excite was the world’s second most popular search engine and Google was a small start-up. That was the year that Google’s co-founders Larry Page and Sergey Brin offered to sell Google to Excite for $750,000, with the condition that Excite replace its own search technology with Google’s.
“The thing that Larry insisted on that we all do recall, is that Larry said, ‘If we come to work for Excite, you need to rip out all the Excite technology and replace it with Google’s search.’ And, ultimately, that’s, in my recollection, where the deal fell apart,” George Bell, who was the CEO of Excite at the time, recalled in 2014.
Today, Google is now known as Alphabet and has $197.30 billion in assets – or more than 263,000 times the price Page offered in 1999.
Lesson: Make sure you kick the tires – and kick them again, and again and again – before saying no to a deal.
MySpace Gets Swallowed
What happened: It’s too simple to say “Facebook killed MySpace,” because dozens of social media platforms have managed to co-exist with Facebook. But business analysts point to NewsCorp’s $850 million acquisition of MySpace in 2005 as the beginning of the end.
Initially, it seemed like a great deal for both sides, as MySpace continued to grow, and by 2008 its value peaked at an estimated $12 billion. Then the rapid decline began.
The internal innovation that had driven MySpace’s initial growth was stifled by NewsCorp and it couldn’t keep up with Facebook. NewsCorp ended up selling MySpace in 2011 for an estimated $35 million.
Lesson: Bigger isn’t always better.
Sony’s Betamax Bombs
What happened: Sony famously ended up on the losing end of the battle it waged with JVC in the 1970s and 1980s over which video cassette system would reign supreme. The failure was so big that Betamax persists as a punchline for bad business decisions.
Betamax had a two-year head start over JVC’s VHS, and it offered better picture quality. There are several reasons why VHS erased the difference and ultimately became the standard, including lower cost, bigger catalog of available films and longer recording times. And, yes, the fact that pornographic movies were available on VHS but not Betamax helped a lot. But the biggest factor may have been Sony’s refusal to license the technology to other companies.
JVC, on the other hand, licensed its technology to dozens of other companies. And as more consumers started buying VCRs, they would find they could share tapes with friends and family, even if their recorder was made by a different company.
Lesson: The best technology isn’t always the best marketed. Sony got complacent with the superiority of its technology and lost to a smarter upstart.
Closure Hurts Apple’s Newton
What happened: Apple tried to jump into the handheld computer market long before it released the iPod and, later, the iPhone. In the early 1990s it released Newton, a handheld computer that was almost instantaneously panned for being too big for a pocket but too small for a bag. There were other flaws with the product, most notably an operating system that relied on handwriting recognition but had an awful system for recognizing what was written with the stylus. Apple eventually stopped production.
Another big problem? Apple closed the platform to outside developers, meaning you could tether Newton to your Mac and use Apple programs, but that was about it. When Apple released the iPhone, it nearly repeated the mistake, but ultimately opened the platform to outside developers. That, more than anything else, has made the iPhone an indispensable tool for modern living for millions of people.
Lesson: Learn from your past mistake. Had Apple insisted on, say, blocking music services other than iTunes as it initially planned when it released the iPhone, we probably wouldn’t be talking about the iPhone 11 years after its launch. But someone at Apple pointed to the lesson the company learned from Newton and the device was opened to outside developers, increasing its usefulness faster than Apple could have done on its own.
Orbitz Looks Cool, Tastes...Not So Cool
What happened: The Clearly Food & Beverage Company of Canada, makers of Clearly Canadian mineral water, launched Orbitz in 1997 in hopes of capturing younger consumers. It billed Orbitz as a "texturally enhanced alternative beverage," but the (few) people who bought it called it a drinkable lava lamp. The drink had small, edible balls that floated because they had equal density to the surrounding liquid. Clearly added an ingredient known as gellan gum to help keep the balls suspended in the drink.
It looked cool, but there was one problem: Most people who tried it said it tasted awful. The most common description of the drink was “cough syrupy.” Other descriptions include “Pine-Sol” and “the old water from a flower vase.”
Lesson: Quality counts. Especially in food and beverage sales, you don’t get very far on novelty, gimmicks and marketing if the product is something people try once and never want to try again.
Zune Pales in Comparison to Its Competitor
What happened: Zune was supposed to be Microsoft’s answer to the iPod. Microsoft spent tens of millions of dollars on marketing Zune, but it sales were sluggish at best during the six years it was in production. At its peak, it didn’t have even an eighth of iPod’s market share.
Android has proven there are ways for multiple product makers to exist in a similar space, but the problem with Zune was that it was what Microsoft executive Robbie Bach later called a "chasing product." Zune was too much like the iPod, meaning there was no real incentive for customers to trade for the Zune. Timing didn’t help either. Six months after Zune was launched, Apple released the iPhone, which would quickly kill the market for stand-alone MP3 players.
Lesson: Pick a problem and solve it when developing products. The most successful tech solves a consumer problem, even if the consumer doesn’t realize it’s a problem until the product is invented. Microsoft didn’t look to solve any problems with the Zune; it simply looked to duplicate a product.
Polaroid Overestimates the Need for Hard Copies
What happened: Following a 2010 reorganization, Polaroid has remade itself. But it is a shell of the company that employed more than 20,000 people and had $3 billion in annual sales in the early 1980s, a little more than three decades after it launched the first – and dominant – instant camera.
And Polaroid seemed to be poised for continued success, jumping into digital photography early on – in 1989, 42 percent of its research and development budget was earmarked for digital photography. Despite its head start, Polaroid was quickly losing film sales, as well as customers in real estate and other key markets.
What went wrong?
Polaroid’s early thesis – a thesis it held onto for far too long – was that customers would always want hard copies of their photos. "As electronic imaging becomes more prevalent, there remains a basic human need for a permanent visual record," CEO I. MacAllister Booth wrote in his 1985 letter to shareholders.
Polaroid held onto that thesis through the 1990s. "People were betting on hard copy and media that was going to be pick-up-able, visible, seeable, touchable, as a photograph would be," Gary DiCamillo, Polaroid CEO from 1995 to 2001, said in a 2008 interview at Yale.
Lesson: Being first to disrupt an industry doesn’t matter if you go about it the wrong way. Looking ahead is important, but so is changing course before it’s too late.
Tower Records Misses Music (Industry) Cues
What happened: Early in the digital music era, general retailers realized CDs were a loss leader – a way to get people in the store and hopefully entice them to buy something else while they were there picking up the latest release from Pink or Korn. Tower Records, however, dug in and tried to go forward as a pure-play music store. It filed for bankruptcy in 2004 and again in 2006, and by that time the buyer decided to liquidate the business and close what had once been a big-city destination for music lovers.
If Tower had survived long enough, it might have used Best Buy’s turnaround as a model for survival. The place where you used to go to buy a TV or stereo system revamped its stores to be service centers while simultaneously diversifying its product line. Tower, alas, held on to its music-only model to the bitter end.
Lesson: When you’re losing market share, it’s time to remake your business.
Toys “R” Us Gets Disrupted by Digital
What happened: Stop us if you’ve heard this one before: a dominant brick-and-mortar retailer is disrupted by online sales and fails to act as quickly as its peers to figure out how to sell its products online. That was the fate of Toys “R” Us and so many of the businesses that have failed in the past 10 decades.
So why, then, do so many independently-owned toy stores continue to not just survive, but flourish? The answer is customer experience. Independent toy stores create elaborate displays to draw customers in and have been trying out a range of ideas, including setting up in-store, “play-it-before-you-can-buy-it" arcades to showcase the next big video game release. In much the same way independent bookstores have survived with author readings and book groups, independent toy stores are focusing on experiences that can’t be duplicated online.
Lesson: Get personal with customers. There’s nothing personal about buying a toy on Amazon, but independent toy stores show you can still get people into a brick-and-mortar store if you focus on customer experience.
Quaker Buys Snapple
What happened: Before energy drinks, Snapple was a beverage of choice for high school and college students. Quaker noticed its success for small retailers and made a massive, $1.7 billion purchase of the drink maker.
But other drink makers had already noticed Snapple’s success, and if they hadn’t, the price Quaker was willing to pay for Snapple certainly opened their eyes. Beverage behemoth Coca-Cola launched Fruitopia in 2004 and SoBe in 2006. Quaker cut its losses one year later, selling Snapple for $250 million in 1997.
Lesson: Get in on the next big thing before it’s the next big thing.
Compaq Gets Ahead of Itself
What happened: By the 1990s, Compaq was the world's biggest maker of PCs, thanks in large part to its emphasis on better graphics and performance, not to mention a better price. That decade followed phenomenal fast growth after its 1982 founding. In 1986 it became the youngest company to make the Fortune 500.
But by 2002, its stock price had dropped by 75 percent and it was eventually bought for pennies on the dollar by Hewlett-Packard. HP finally discontinued use of the Compaq brand name 11 years later. Initially, observers assumed Compaq was a victim of the dot-com bubble bust. But why Compaq and not, say, Dell? The culprit, according to more detailed analysis, is that Compaq grew too fast. Boston Consulting Group research shows accelerated revenue group correlates with shorter lifespans for companies. In Compaq's case, acquisitions of Tandem Computers in 1997 and the Digital Equipment Company in 1998 made the company too complex. In other words, they mucked up the simple formula that had fueled their success.
Lesson: Slow down. The 1990s were a time of rapidly changing marketplaces and companies like Compaq felt pressure to make moves to keep up. But branching into new businesses took attention away from its core effort – the thing Compaq did well and built its success on.
WOW! Chips Become a Punchline
What happened: If the promise of WOW! chips seemed too good to be true – a fat-free chip that tasted like they were laden with fat – it’s because it was. Lay’s launched versions of Lay's, Ruffles, Doritos and Tostitos made with Olestra in 1998. Olestra was supposed to be the wonder ingredient that gave the fat-like flavor without the negative consequences. And the products initially did well, posting $400 million in sales in the first year.
The problem was Olestra's molecules were too large to be digested by the body, meaning they passed directly through the digestive track. For many consumers, the effect was the same as a laxative, including the accompanying side effects of cramping and diarrhea.
By 2000, sales had been cut in half, in large part because of the warning Lay’s now had to put on packaging: “This Product Contains Olestra. Olestra may cause abdominal cramping and loose stools.”
Lesson: Product testing and common sense are important. Frito-Lay could have undone a lot of consumer trust but, fortunately for the company, the product is now mostly remembered as a punchline and not a brand killer.