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How to Fail in Business

By Sonjui L. Kumar

March 2012

Learn from the mistakes of the giants

Blockbuster, Palm, Sears, Blackberry, Avon, and Kodak. Each of these companies was once a leader in their field, dominating the market with their innovative ideas and marketing strategies, yet each of them is now in serious decline, struggling to maintain market share. Although the industries and customers may vary, there are a number of common lessons to be learned from the mistakes that these giants made. As business owners, we should take a moment to reflect on their actions or inactions relative to our own operations.

Failure to Innovate

It is easy for enterprises and their founders to fall in love with what they have initially designed, especially when it is successful. A major mistake made by many of the companies named above was failing to continually develop new products and services to keep up with the competition and the needs of their clients. Although we tend to associate innovation with technology companies, it is necessary in every industry. Sears came up with the first catalog and was the retailer of choice for two generations of Americans. However, it completely missed the mark on online sales and has been playing catch up with much younger companies for the past 10 years. Similarly, Blackberry was the first hand-held device to bring e-mails to your phone, but it never gave consumers the increasingly user-friendly features that are now commonplace. Keeping current not only with what the customer wants today but what they may want over the next five years is a key component of what keeps successful companies at the top.

Lack of Courage

Many entrepreneurs are very good at taking risks in the start-up phase, when there is not as much to lose, but then become comfortable with their success and status. Blockbuster is often cited as an example of a company that failed to invest in the next big thing, video streaming, choosing to invest in its bricks-and-mortar facilities. Organizations need risk takers, those who are willing to challenge the status quo. Of course risk assessment needs to be part of the mix but there is no doubt that inaction can be as harmful as the wrong action.

Cashing out/Greed

Another thread common to many recent failures is that founders and investors have cashed out too soon or at a critical time, creating volatility in management and uncertainty for the company. The culture of just running a company long enough to bring the maximum return to investors has brought some very successful operations down in their prime. Just think of the movie Wall Street (the first one) for an extreme example of how the private equity market works and its ability to devastate a business. There are dozens of examples of internet companies that had great ideas, but who sold out, merged or were acquired before achieving their full potential.

Investments

Even companies that are still leaders in their field have made mistakes in this area: investing heavily in specific technology or equipment that later prevents them from adapting to changed circumstances. Sun Microsystems and Toys “R” Us are two examples of companies that made big investments in the wrong area. Sun invested in computer servers that were replaced by cheaper and faster PCs, and Toys“R”Us in huge big box stores that carried the same products that Walmart and Amazon could sell much cheaper.

Many of the companies named above may not be leaders in their industry but are still surviving and many are trying to turn themselves around. The U.S. auto industry has managed not only to resuscitate itself after years of being overtaken by foreign carmakers but also to take the lead in many areas. The good news is that past mistakes can be corrected and the direction of your company can be changed if you are open to the process.

[Business Insights is hosted by the Law Firm of Kumar, Prabhu, Patel & Banerjee, LLC. Sonjui L. Kumar is a corporate, transactional attorney and a founding partner of KPPB. Disclaimer: This article is for general information purposes only, and does not constitute legal, tax or other professional advice.]

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