10 Worst Business Decisions Ever Made
As far as cautionary business tales go, the last 150 years have offered up a boatload.
From barefaced ego-tripping to muddleheaded inertia, companies that ride high on the wave of fame and fortune crash pretty hard now and then. These 10 cases are offered up as some of history's best examples of the price you pay for brand unawareness and opportunity unanswered—and in most cases, opportunity was knocking very, very loudly. Remember, these are just the tip of the iceberg. When it comes to bad business decisions, history has a habit of repeating itself (fair warning).
1. 1876: Dial M for Mistake
The telegraph was the cat’s pajamas for William Orton, president of Western Union. Happy with his long-established reign over the communications industry, he scoffed at the offer to buy the patent for another wire-based electrical mode of communication, the telephone, for the sum of $100,000. In fact, he went so far as to write Alexander Graham Bell a needling letter, in which he called the invention an “electrical toy” and “interesting novelty” with “no commercial possibilities.”
It took only two years for Orton to realize he had made a monumental (and just a tad embarrassing) mistake. He then tried to muscle in on Bell’s act, employing Thomas Edison to come up with something even more spectacular. After unsuccessfully challenging Bell’s patents, Orton finally withdrew from the competition in 1879.
What was Orton’s fatal flaw? Well, his ego for one. Talk about a sore loser.
2. 1975: A Kodak Moment Best Forgotten
Imagine being the first to develop the digital camera. Feels pretty great, right? Now imagine you don’t tell anyone about it and someone else develops it and gets all the glory (Sony anyone?). Not feeling so great just now, are you?
Here, in a nutshell, is the lamentable tale of Kodak, which at its peak held a whopping 90 percent share of the U.S. film market, and was synonymous with storytelling in America. Which, funnily enough, is the root of the problem. Myopic, self-involved Kodak was a victim of its own success, deciding to keep its stellar invention under wraps rather than mess with its perfect monopoly.
Unfortunately, Kodak’s lack of vision resurfaced a decade later when it opted not to become the official film of the 1984 Los Angeles Olympics. Instead, that honor went to new kid on the block and competitively priced Fuji, which got the foothold in the U.S. market it had been looking for.
Although a much-loved brand for decades, Kodak faltered and never truly recovered, ultimately filing for bankruptcy in 2012. That said, the company continues its march onwards, reporting continued financial improvement as of the third quarter of 2013.
Kodak’s mistake? A triple whammy of myopia, stubbornness and visionless decision-making.
3. 1977: In a Galaxy Far, Far Away
Now we venture to the entertainment industry for a grit-your-teeth, slap-yourself-on-the-forehead, Three Stooges-worthy business decision.
You’d think George Lucas had used a Jedi mind trick on senior executives at 20th Century Fox when, in a bad decision of galactic proportions, they agreed to be paid the paltry sum of $20,000 (a cut of Lucas’ paycheck) in exchange for all (yes, ALL) the merchandising rights for any and all (yes, ALL) Star Wars movies ever to be made.
Mr. Lucas, the stars definitely shine on you. Not only did a major studio agree to finance your movie and give you gross-profit participation, but it handed over all the rights to, well, everything, which in this case adds up to tens of billions of dollars.
Talk about a career-defining moment—and one of the worst business decisions of all time.
4. 1979: How Much for Microsoft?
"I consider it one of the biggest business mistakes I've ever made," said Ross Perot in a 1992 interview with Paul Andrews and Stephen Manes for The Seattle Times. So true, Mr. Perot, so true.
An asking price in the multi-millions for a $2 million tech company might seem just a bit uppity when a 23 year old is doing the asking. That is, of course, unless the tech company is Microsoft and the 23 year old is Bill Gates.
Unfortunately for Perot and his then $1 billion company Electronic Data Systems (EDS), the price tag seemed just too steep. And while Gates might have been tempted by the opportunity to grab his pot of gold and enter the big bucks corporate marketplace, he instead kept his self-composure and refused to undersell. Pretty astute for a twentysomething. But then again, he’s always been ahead of the curve.
Although a whopping business opportunity utterly wasted, you have to give Perot his dues. He’s proved himself the very best of losers. "My satisfaction wouldn't be in all the money I'd made,” he explained to his Seattle Times interviewers. “It'd be in the day-today contact with Bill and the people at Microsoft in watching them do it. That would have been a hell of a seat, right?"
5. 1980: MS DOS? Sure, Keep It
It was the start of a software revolution. Unfortunately, IBM didn’t know it.
The company’s position as a technology super power was pretty much secure in 1980, when it pegged Bill Gates (yes, him again) as the person to develop a PC-DOS operating system. IBM’s cost for the project was $80,000…and an agreement to allow Gates to keep the platform’s copyright.
And so MS-DOS was born—and Microsoft’s pre-eminence as king of the PC software world along with it.
You might well wonder how such a thing happened; how did Gates get so very, very lucky? But really, all that anyone can agree on is that he obviously saw the right opportunity at the right time. By all accounts, Gates did the unexpected and rather than asking for more money up front or a per-copy royalty, he instead asked for the platform’s selling rights. And in that context, you can kind of, sort of see how, at first blush, IBM may have thought it was getting a bit of a deal.
But of course, in business, you should never go with first blushes. There lies the lesson.
(For all you techies out there, visit Michael J. Miller’s August 10, 2011 article, “The Rise of DOS: How Microsoft Got the IBM PC OS Contract,” on PCmag.com for a blow-by-blow description of how the deal was struck.)
6. 1981: ET Phone Mars; No One Home
Aliens and candy. The two go together like apple and pie. Pity the Mars Company didn’t foresee it that way.
The candy giant learnt its merchandising lesson the hard way when Amblin Productions offered to feature M&Ms in its upcoming movie, ET, as the treat that lured the adorable alien out of the shadows and into the hearts and minds of moviegoers around the world. In exchange, Mars was asked to promote the movie on M&Ms packaging. But, alas, they said no (and no one seems to agree why).
One man’s folly is another’s fortune, however. Hershey’s lesserknown Reeses Pieces saw the possibilities, weighed the risks and grabbed the offer with both hands. A whole lot of skipping and humming of a happy tune followed when, in the months after the movie’s release, Reeses reported an impressive 65-percent spike in sales.
Seriously, ET can phone Hershey’s any time.
7. 1985: Please Don't Touch My Soda
The Coca-Cola Company wanted to teach the world to sing. And that’s exactly what it did. For the 122 years of its existence, Coke fans have sung the praises of their favorite of all sodas. That nostalgia really isn’t anything to mess with, as Coca-Cola now knows all too well.
In 1985 the company made the bold move of reformulating its iconic beverage. Now known as New Coke, the formula had tested well, but its launch was met with a firestorm of anguished complaints from diehard Coke fans. Within a few months, the company had said its I’m sorries and put the fizz back into its public image by reintroducing the old formula as Coca-Cola Classic.
Although New Coke was a terrible decision, there were two things that actually worked in Coca-Cola’s favor: The company learned that its customers are passionately protective of their favorite brand, and the public learned that there’s really nothing Coca-Cola won’t do to give them what they want.
Not one to shy from its blunders, The Coca-Cola Company has a webpage devoted to New Coke. It opens with, “To hear some tell it, April 23, 1985, was a day that will live in marketing infamy.” Bravo Coca-Cola; not only did you do whatever it took to make your customers happy, but you turned a major faux pas into a proud part of your personal history—one that your fans recall with a wink and a smile.
8. 1999: We're Bigger Than Google
Anyone remember Excite? At one time it was a leading search engine at the head of the dotcom revolution. In 1996, it even gobbled up a couple of its search engine competitors, WebCrawler and Magellan.
Seeing just how great Excite was, Google founders Larry Page and Sergey Brin approached the company with the chance to purchase their search engine for $1 million. They even sweetened the deal by dropping the price to $750,000—a definite steal for a company with a market capitalization of almost $395 billion today.
Well, you don’t have to be a genius a la Page or Brin to know that Excite CEO George Bell turned the offer down. And within only a few years, David and Goliath had traded places, with Excite stocks plummeting and an eventual acquisition by AskJeeves.
This is pretty much the perfect example of you win some, you lose some. And in this case, you lost big, Mr. Bell.
9. 2000: When Mergers Go Really Wrong
It was supposed to be the dawning of a new media age. But fortune had a different plan.
Time Warner chairman Gerald Levin took bravado to a whole new level when, during contract negotiations for a $350 billion merger with America Online (AOL), he opted to forego rudimentary measures to protect against stock volatility risk. The ink on the contract was barely dry when the dotcom bubble burst and AOL shares took a nosedive.
As Bloomberg BusinessWeek reported at the time, “The decline in AOL shares might sting less if a ‘collar’ had been in place, but no such clause exists. A collar is a safety measure written into deals to automatically readjust terms if the two companies' stocks trade outside a designated range before the deal closes. Since AOL is a tech stock and dealmakers anticipated big ups and downs, Time Warner didn't insist on a collar, showing a commitment to get the deal done. And the breakup fees—the cost of walking away from the deal—are hefty: $5.4 billion for AOL, about $4 billion for Time Warner.”
This monumental merger ended up costing countless jobs, devastating countless retirement accounts, and causing close SEC and Justice Department scrutiny, which led to fines and earnings restatements. Suffice it to say, AOL Time Warner reported a quarterly loss of $54 billion in April 2002, Levin resigned from his position as CEO in May 2002, and in January 2003 AOL’s former CEO Steve Case announced his resignation as chairman.
The lesson here is that, when you’re dealing with billions of dollars and the lives and livelihoods of your people, cavalier is the very last approach to take.
10. 2007: A Slip Off the Razr Edge
Remember how cool the super slender Razr cellphone was? No? That may be because its cool factor evaporated faster than Tiberius cologne at a Star Trek convention (yes, that really is a thing).
At the height of its success in 2006, Razr gave $43 billion Motorola a sharp 22-percent share of the mobile phone market. Within a year, however, the hype and hoopla had all but died. Motorola failed to evolve its popular brand into a smartphone leader and instead was selling off the traditional models at a discount. Slow to market doesn’t quite sum it up.
It wasn’t until 2010 that a new line of Razrs was launched, but by that time the ship had sailed, with iPhones and BlackBerrys proudly standing at the helm.
In four short years, Motorola’s revenues were slashed to $22 billion, and its shares fell more than 90 percent. Unable to make its way back to the top, Motorola Mobility was eventually acquired by Google Inc.
Motorola illustrates the fatal marriage of lack of vision and slowness to act, obviously taking a page out of Kodak’s book.
As I warned you right at the beginning, history does have a tendency to repeat itself.