What Can Small Businesses Learn From Blockbuster's Failure? Plenty.

Last Updated Sep 27, 2010 6:54 PM EDT

By Lisa Welchman, Founding Partner at WelchmanPierpoint, LLC
Executives who understand the value of a well-tuned Web strategy shouldn't be surprised at Blockbuster's Chapter 11 filing. The impact of the Web on the distribution channel for media products has been clear for at least 10 years. We've watched industry entertainment and media giants lose revenue as young upstart companies (or larger ones with visionary leaders) leverage the capabilities of the Web to outperform them. And now we're watching them go bankrupt as they fail to reinvent their business models to counterbalance the distribution of information online. I help companies develop strategies for managing complex Web properties. Based on what I've seen, I feel small companies can learn from the mistakes of the giants. Here are three takeaways from Blockbuster's failure.
  • It's important to innovate and operate. If you were managing a mature business prior to the advent of the Web, you have a special challenge. You have to manage your existing business and integrate Web-based capabilities into your operations model at the same time. This balancing act can be difficult to execute. While the Internet and the Web are the new and exciting distribution channels and operational mechanisms, you may still be realizing a majority of your revenue through pre-Web mechanisms and operational paradigms. You must respect both the absolute numbers and the trend. In Blockbuster's case this meant keeping stores open where profitable while leveraging their market share and brand visibility to address the newer distribution channels. From my view, Blockbuster continued to operate, but only paid lip service to innovation, which is how competitors Netflix and Redbox stole their customer base.
  • Take advantage of your small size to change quickly. It's difficult for large businesses to change. Frequently big business is grid-locked with a deep and nested organizational structure which makes horizontal collaboration and operational change difficult to achieve. And associated operational supports are frequently aligned to them - making the organization bloated and slow-moving. On the other hand, small businesses are more likely to have a flat management structure and are better positioned to define and implement change more decisively and quickly. Netflix - coming from nowhere - was able to out-perform Blockbuster. Small businesses should examine their market space and see where speed and finely tuned execution might provide business opportunity.
  • See the business field clearly no matter the size of your market share. Sometimes businesses get too comfortable and lose their sharpness. While almost no one was ready for the business tsunami of the Internet and Web, leaders had two choices: Analyze the impact and manage accordingly; or not. Clay Christensen's concept of disruptive innovation has been at play here. Some fundamental rules changed and Blockbuster didn't get it fast enough. Whatever performance yardstick Blockbuster was using to measure business success and guide strategic planning underestimated the impact of the change. The business field is more level than it has been in a while because of the Internet. Seeing the field clearly can allow smaller businesses to take on the giants.
It will be interesting to see what happens with Blockbuster. Preoccupied with closing its brick and mortar stores, it's hard to see how it will be able to re-group and recover market share. But, in the fast shifting Web-age, who knows?

Lisa Welchman is a Founding Partner at WelchmanPierpoint, LLC
Photo courtesy of Peter Hurley