The hardest thing to learn in life is which bridge to cross and which to burn.
The American corporate culture has helped sell millions of copies of press due to their irrational decision-making. Well, it is hard to believe that just one bad decision, or underestimating a single brilliant individual, can actually turn out to be the last mistake of a billion-dollar conglomerate.
However, that is not the case in every situation, and not all bad decisions have affected companies drastically. Take the case of General Motors or GM. The company made several mistakes since it was formed, but none of them were as harmful as the idea of manufacturing large vehicles at a time when hatchbacks were trending. This, and many more silly decisions, led to the fall of GM during the recent financial crisis. Though GM was saved by a government bailout, not every company has a happy tale to tell.
This article just doesn't talk about big conglomerates and the mistakes that led to their downfall, it talks about some of the biggest bad business decisions made by individuals that altered their road to greatness forever.
Who can forget what Lehman Brothers did? They took full advantage of the real estate market boom by maximizing the amount they borrowed to purchase more mortgage-backed securities and real estate. By 2007, their leverage ratio was 31-to-1, in simple words, they were borrowing $31 for every $1
in equity. This risky move proved highly successful for Lehman Brothers, and earned them billions.
However, the party was short-lived as real estate prices dropped significantly. The firm ran from pillar to post, but was unsuccessful in unloading those assets onto the market, as the real estate market crashed. Other financial institutions like Goldman Sachs Group and Morgan Stanley saved their heads by becoming bank holding companies, which made them eligible for government bailouts. Help did come for Lehman, but it was too late, the ship had already hit the ocean floor. The company already lost billions, and its accounting partner Ernst & Young filed a suit against the executives for unlawful accounting practices.
The company that started the mobile revolution. It is hard to believe that Motorola whose mobile phones captured almost 40% of the US market share in 2006, can't be seen anywhere these days. Who can forget the thin and stylish Moto Razr that became the phone everyone wanted. However, it failed to capitalize its own success, and for various unknown reasons the company failed to launch next generation smartphones.
By 2007 it was selling the Razr with discounts. Between 2006 and 2009, the company's stocks plummeted from $107 to $13. By 2010, Apple and Blackberry smartphones were giving tough competition to the mobile giant. Earnings went from $43 billion in 2006, to just $22 billion by 2010. To cover up the loses, the board decided to split the company into two separate companies, from which the mobility unit was purchased by Google.
Not many know, but it was Eastman Kodak that was the inventor of digital camera back in 1975. It is unfortunate that the company failed to recognize its own invention, and didn't invest in the technology to ensure the safety of its film business.
In the 90's, tables turned and people started preferring digital cameras instead of their film counterparts. The company tried to recover by penetrating digital models into the market, but by then Sony, Fuji, and Canon were already dominating the market. In 2001, it was behind Sony in the digital camera market, and was losing almost $60 on every camera it sold. By 2010, the situation got worse for Kodak as the market was buzzing with the rise of tablets and smartphones. Its stock prices fell from $94 in 1997, to 65 cents in 2011.
Firestone was one of the biggest tire-making companies, and remained so for quite sometime. In 1972, to keep itself ahead in the competition, Firestone started manufacturing radial tires that had a longer shelf life than regular tires. However, the same year it was reported that rubber came off from the wire when the tire was in use. Initially, the company ignored the problem, and was manufacturing and selling these faulty tires to auto giants like General Motors. Soon pressure from media, government, and human support groups increased, and Firestone was forced to recall almost 10 million tires in 1978.
To save itself from the government's wrath, Firestone initially blamed the consumer for the low maintenance of its product. However, an investigation conducted by the National Highway and Traffic Administration revealed that the top bosses of Firestone knew about the defective products before they left the company's warehouse. This led to lawsuits, lots of negative publicity that badly affected Firestone sales and earnings, and the company was eventually bought by Bridgestone in 1988.
DEC (Digital Equipment Corporation)
Digital Equipment Corporation or DEC was a hit among the masses because it always priced its products way below than its biggest competitor International Business Machines Corporation (IBM). DEC was a leader in the minicomputer market from the mid 60's till the early 90's, but it took too much time to penetrate the PC market.
When they finally decided to enter the computer market, they went in with their own operating system, VMS. The plan backfired and companies like Hewlett-Packard and Sun Microsystems captured the market by promoting UNIX. Soon after, Microsoft became the world leader of the PC market, and DEC began fading away. It kept posting losses worth billions, and finally was bought out by Compaq in 1998.
In 1985, the century-old Coca -Cola decided to change its classic cola recipe. Why? Because Pepsi was emerging as serious threat, and Coke wanted to prove its merit. Company executives stepped up and announced that the old flavor was being retired for something new, and almost every banner said that 'You would love it'.
The results were very very bad. Within weeks of the launch of the new Cola flavor, thousands protested in front of the company's office, and shoppers poured away all the stock in gutters. Although the new Coke tasted good, millions of Americans had already established a deep connection with the classic recipe, and they never wanted it gone. The company had never imagined this backfire, and after three painful months realized their mistake and relaunched the classic formula.
Would you believe that Ross Perot, the founder of Electronic Data Systems (EDS) and Perot Systems negotiated to buy Microsoft in 1979?
Perot was a computer-industry kingpin billionaire in 1979, and was very interested in buying the up-and-coming Microsoft. He offered the then young Bill Gates a price between $6 to $17 million, but Mr. Gates knew that his brainchild was worth more. He quoted somewhere between $40 to $60 million, and Perot found the price to be way too high. There is no need to say what Microsoft's worth is today, and Perot has acknowledged on various media platforms that he made the biggest business mistake of his life by passing off this deal.
Kmart Vs. Walmart
Kmart initially had a great run and was doing good business. Then in the 90's, in an attempt to give stiff competition to Walmart, Kmart engaged in a full-fledged discount price war with Walmart stores.
Walmart was working with a supply chain system called 'just-in-time', that allowed the retailer to restock necessary items. Kmart never had such a system, and it faced consumer complaints when there were no goods available. During this fiasco, Walmart shares rose to around $82 and Kmart's shares fell 63%. A new team was soon hired to turn the fortunes around, but it was too late and the company filed for bankruptcy in 2002.
The current Chrysler subsidiary was bought out in 1987 after it had incurred huge losses for almost 20 years. The biggest mistake that American Motors did was to replicate the business strategy of Ford and General Motors by manufacturing large cars for a better profit margin.
The move didn't work as planned and the company faced huge losses, but was able to survive for a while thanks to the success of the Jeep brand in 1970. However, even Jeep couldn't save American Motors completely, as international auto makers had penetrated the American market, and were selling cars at a much lesser price due to the availability of cheap labor in their country. One of the biggest reasons for the American Motors downfall is the long-standing labor agreements in place that guaranteed a higher percentage of salaries in the 1980s.
RCA (Radio Corporation of America)
Consumer electronic giant RCA was regarded as one of the most innovative companies of its time. It is highly credited with introducing the concept of electronic televisions to a wide market. Everything was going great for them, then suddenly the company decided to diversify its business, and purchased a dozen companies that included Hertz (Car Rental), Random House (Publishing House) and Banquet (Food maker).
The company even jumped with both feet in the business of mainframe computers, something that was IBM's territory that time. The saddest part was, as RCM was broadening its horizons, it was cutting back on R&D for its original business. Soon the company found out that its mergers were unsuccessful and incurred heavy losses. It tried to return to its original business of color televisions, but by then major Japanese electronic manufacturers that made cheaper goods had reached America.
There was a time when not everyone knew Google, and the company was also a small player in the Internet market. A well-known name of the 90's, Excite Portal was very interested in buying Google, and they were pleasantly surprised when they found out that founders (Page and Brin) were more than happy to sell Google for a $1 million. Further discussions brought down the price by $750,000.
In the end, the deal fell through because Excite's CEO George Bell was against it. A few years later, Excite was purchased by Ask.com. If that deal had been successful, who knows what would have happened. Could Excite be what Google is? In the end, Excite Portal missed a terrific opportunity to buy Google for less than a million. By the way, Google's current worth exceeds $150 billion.
Some More Really Bad Business Decisions
Everybody wanted to be a part of Facebook, and when the social networking giant offered its IPO, investors jumped in with both feet. However, its stock debut in May was a disappointing affair. The biggest mistake was to price the stock at a high rate of $42.05. Sure the initial hour generated a lot of excitement, but it went on a total downhill from there. No one expected the stocks to be so highly priced, and as a result the prices fell to $17.55, but then went up to $27. In addition to the underperforming stock, the incident of several Wall Street banks analysts already informing their preferred clients about the low revenue estimates of the company, attracted harsh criticism from small time investors.
Decca Records Ignores The Beatles
It is really hard to believe that someone would ignore The Beatles, but that's what Decca Records did after viewing their audition. The Beatles felt good about their chances, but they were dropped on the reason that 'Guitar groups are on the way out'. We all know what happened next with the four Beatles.
NBC and CBS pass on Monday Night Football
Baseball dominated the TRPs during the 60s, but it was football that was emerging as the new favorite of the masses. Commissioner Pete Rozelle knew that a joint venture between the NFL and AFL would create a great show and bring immense popularity and success to the sport. Executives tried approaching NBC and CBS, but the channels were unsure of the concept, and they didn't want to sacrifice their successful sitcoms for sports. The opportunity was grabbed by ABC, and Monday Night Football became one of the highest rated shows of the channel.
ABC Ignores The Bill Cosby Show
After the win with Monday Night Football, ABC executives did one of the biggest mistakes of their careers - they passed off The Bill Cosby Show. The idea for the show was first pitched to the President of ABC's Entertainment Division Lewis Erlicht. He turned it down, because Cosby didn't have a script or the pilot episode ready. NBC picked up the idea, and The Bill Cosby Show became an instant hit catapulting NBC's status as the most watched television network in America.
M&M's Turns Down an Opportunity to Appear in E.T.
Although it was a new product, the sales of Reese's Pieces skyrocketed after it appeared in Steven Spielberg's, E.T. The Hershey Company can thank their competitor M&M's, who passed on this opportunity for unknown reasons.
Never in their wildest dreams would these people have thought that their one wrong step or miscalculation could end up being so bad that it changed lives forever.