Business StrategyGeneral Business

7 Spectacular Business Strategy Failures

There’s risk involved in every business decision, and choosing the right strategy isn’t always easy. However, there are a few cautionary tales business people should keep in mind before following down a path.

Below we revisit 7 business strategy failures and outline how you can avoid them in your decision making.

1. Iridium – Gambling on Technology

Iridium was a company that produced global satellite phones. Backed by Motorola, it spent $5 billion to expand and launch its wireless satellite phone range. To work, the system relied on 66 satellites, which were not yet in place. In an effort to make this happen, the company put itself in $1.5 billion of debt.

Further, each handset was priced at $3000 and cost $5 a minute per call, on top of other significant monthly charges. Customers rejected this and in 1999 the company filed for bankruptcy, less than a year after launching.

2. Green Tree Financial – Bad Loans

Green Tree Financial was another company devastated by the Global Financial Crisis. The company extended 30-year mortgages for trailers and homes. These mortgages were high risk as they relied on profiting from origination fees. This was a strategic failure as trailers lose value quickly.

Many owners defaulted and were then subject to exorbitant fees and harassment, tactics which resulted in litigation against the company. Green Tree Financial was backed by Lehman Brothers, JP Morgan Chase and Bank of America, but fell into more and more debt as owners defaulted.

In another strategic bungle, Conseco acquired Green Tree Financial and with it, it’s large debt.

3. eBay – Misguided Merger

Although 70-90% of mergers fail, on the 10th birthday of her online auction site, eBay, Meg Whitman spent USD $3.1 billion on Skype, which was then, only two years old. Whitman believed that Skype would boost its e-commerce strategy, along with eBay’s auctions and PayPal’s online payment system.

Skype’s value soon dropped to USD $1.4 billion. Whitman resigned and was replaced by former business consultant John Donahoe, who sold 65% of Skype, arguing that it was a strong standalone business. To cope with losses, eBay cut 10% of its workforce in 2008. Donahoe also moved away from eBay’s flea market auction style towards more set prices from larger retailers, a strategy which angered many sellers. Today Skype is worth USD $8.5 billion under Microsoft.

4. Kodak – Need for Change

Kodak is synonymous with photography. Their print processing methods were global and technologies ahead of the competition. However, the company ultimately came crashing down because it didn’t change their strategy with the market.

Kodak invented the digital camera in 1975. Even though they produced a report on predicted future trends in the market, management decided that the technology wouldn’t disrupt the market so strategic change was unnecessary. They had 10 years to act, but didn’t. The company lost 75% of its value before filing for bankruptcy in 2012.

5. Schlitz Brewing Company – The Customer Knows Best

The Schlitz Brewing Company, based in Milwaukee, Wisconsin, had been running for over a hundred years and produced the best selling beer in the United States. However, CEO Robert Uihlein wanted more.

Uihlein proposed a massive shift in its manufacturing to increase speed-to-market and profitability. He found a way of cutting brewing time from 40 days to 15 days, replacing barley malt with corn syrup. He also switched stabilisers to circumvent labelling laws. This was going well for him until customers noticed that it tasted awful because it hadn’t been fermented properly.

Because of this, each beer had a thick sediment which was compared with mucous. Schlitz was forced to make a secret recall of 10 million bottles of beer costing over USD $1.4 million.

6. Donald Trump – Trumping the Lot

There’s perhaps no more iconic businessman than Donald Trump. He tries and fails, and tries again. Among his many business ventures, there’s Trump Airlines, Trump Vodka, Trump Mortgages, Trump Casinos, Trump Towers (hotels) and Trump: The Game (a board game). And as this list suggests, all of them were branded with his name.

Let’s just look at Trump Airlines for now. In 1988, Trump paid USD $365 million for Eastern Air Shuttle, an airline that made hourly short haul flights between Boston, New York City and Washington D.C. Despite the airline previously being a very standard, no-fuss service, Trump sought to turn it into a luxury experience by adding maple-wood veneer to floors, chrome to seatbelt latches and gold-plated bathroom features. But like many of his ventures, it ultimately went bust. The airline never made a profit due to pre-Gulf War fuel prices and a lack of customer interest. He was forced to default on his loan and turn the company over to creditors.

7. Enron – Crooked Dealings

Enron exemplifies corporate corruption. The energy company was named ‘America’s Most Innovative Company’ for six years between 1996 and 2001. It rose to dramatic heights, only to later fall, bringing Wall St crashing with it.

The relaxed regulatory environment the late 1990s allowed Enron set to up numerous new arms of its business (such as Enron Online or Special Purpose Vehicles) and claim projected profit on the books despite not making any money. Among other methods, they also cut deals with other energy providers in order to manipulate the market.

Even though Enron was as dodgy as they come, highly reputable accounting firm Arthur Anderson LLP offered its support to the company. The bubble eventually burst in 2001 when the company began to crumble under its own weight. Investors and auditors were suspicious and investigations found its management and accountants guilty of conspiracy, insider trading and securities fraud.

As these cautionary tales suggest, choosing a business strategy can be a road fraught with dangers. For expert financial advice, contact our trusted advisors today.


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Neil Parker
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