The Seven Signs of Business Doom
Failure is fascinating, when it happens to others. That should make a big seller of "Billion Dollar Lessons: What You Can Learn from the Most Inexcusable Business Failures of the Last 25 Years," by Paul B. Carroll and Chunka Mui.
The book is due out on September 15th, and I'll hope to have a review of it then. For now, let's look at their "7 Ways to Fail Big," from the September issue of Harvard Business Review. The full article isn't available online, but here's Mui narrating a presentation on it for HBR.
Here are the seven ways to fail big:
- The Synergy Mirage. Two companies with complementary products may not be stronger together. That didn't work for Quaker and Snapple, in part because Snapple's distributors didn't want to sell Quaker's Gatorade brand.
- Faulty Financial Engineering. Pushing the financial envelope can lead to near-fatal paper cuts. Conseco wound up in bankruptcy after its purchase of Green Tree Financial, which grew rapidly with risky loans to trailer home owners.
- Stubbornly Staying the Course. Doubling down on a strategy can lead to doom -- ask pager maker Mobile Media or Pillowtex, which built up its U.S. manufacturing as the industry was offshoring.
- Psuedo-Adjacencies. A business that looks similar may not be. Laidlaw, the big school bus operator, thought ambulances were a good fit. But the business turned out to be entirely different.
- Bets on the Wrong Technology. Sometimes the world yawns at your better mousetrap (use a video phone lately?). Cases in point: Motorola's Iridium satellite phone, and FedEx's Zapmail service.
- Rushing to Consolidate. To the buyer goes the glory -- and the risk. Look at Ames Department Stores, which was a rural discounter before Wal-Mart, and then tried to use acquisitions to follow Wal-Mart as it went nationwide.
- Roll-Ups of Almost Any Kind. Any company that thinks it can get big by snapping up lots of smaller players in the same market will probably not succeed. Roll-Ups are the red flag of failure, as far as Carroll and Mui are concerned (though even their research suggests that perhaps 1/3rd of such efforts have created shareholder value).