Lessons Learned From Some of the Most Resounding Business Failures
Key Takeaways:
- In hindsight, analyzing the “failure stories” of those businesses which used to lead their industry and eventually went down in flames provides valuable insights into the causes for business failure. Chief among them are:
- Inability to adapt to changing market conditions and expectations
- Misguided leadership decisions (or, in some cases, mismanagement)
J.C. Penney. Revlon. L’Occitane. Cirque du Soleil. These are just a few of the businesses that had to file for bankruptcy as a result of the COVID-related market disruptions.
Even when the economic climate is stabler than it is today, business success is never granted, as demonstrated by the countless examples of seemingly sound companies that collapsed and went bankrupt in “normal” business conditions.
Here’s a round-up of some of the most notable business fiascos of the recent years.
Failure to Read the Market and Innovate Accordingly
Let’s start with Kodak. They dominated the photography and videography film market for decades. However, when one of their own engineers invented the digital camera in 1975, they failed to see the potential of the new technology and chose to dismiss the innovation — in part over concerns that digital photography would harm the film market. Missing the digital revolution proved fatal for the company, which went bankrupt in 2012.
The demise of Kodak came as a surprise for many. Similarly, Yahoo’s downfall from its leading position in the 2000s online advertising market could hardly have been anticipated. Remember: in 2002, the firm was even slated to buy Google! Unfortunately, a series of wrong turns caused the company to lose its edge. Chief among which is their failure to understand the new consumer focus on search rather than content and the importance of user experience.
Yahoo was once valued at $125B. In 2016, the company sold to Verizon for under $5B.
Among other high-profile examples of once highly successful businesses that failed for inability to adapt to consumer expectations are Nokia (which blew its chance to lead the smartphone market) and Blackberry with its not-so-user-friendly hardware.
Takeaways:
The firms that have neglected changes in consumer trends and needs (including user experience) have almost consistently lost their footing. It is key not only to keep innovating and exploring new paths, but also to make sure that the product innovations you invest in really meet market expectations.
Poor Management Choices
One of the most resounding failures in the recent history of business is arguably that of Enron. An energy and commodity provider, the firm was one of the jewels of the American economy in the late 1990s. However, a series of unadvisable investments decisions (e.g. in large-scale broadband networks at the exact time of the dot-com bubble burst) caused the company to incur severe financial loss — which management chose to hide, leading to a major scandal. In 2001, after a series of revelations about irregular financial management and accounting procedures, the company filed for bankruptcy, reporting huge losses.
In a different vein, casual wear brand Abercrombie & Fitch made a name for itself in the early 2000s with its teen-oriented apparel and accessories. But a stream of controversial statements and decisions (refusal to market XL or XXL sizes for women because the CEO wanted “thin and beautiful people shopping in his store”, discriminatory hiring practices, allegedly offensive product design, and the list goes on) alienated the customer base and caused the company to lose the race to fast-fashion retailers like H&M.
Takeaways:
Ethics and corporate responsibility, brand reputation and brand image are actual corporate assets that may make or break a business. When it comes to building or maintaining a strong market position, intangibles matter.
Variations on the Theme of Business Failure
Faulty decision-making at the executive level and insufficient alignment with market and consumer needs are always somehow involved in business flops. But they can materialize in different ways, across various dimensions.
For example:
- Financing hurdles (pets.com),
- Ineffective business planning (MoviePass),
- Marketing or advertising fails (“Cocaine“ energy drink),
- Solutions without a clear purpose (Segway),
- Problems with product quality (Dasani Water),
- Lack of differentiation from the competition…
And the list goes on.
