Saturday, December 17, 2011

Innovate or Die. Innovate and Die.

Every Friday, we will devote this space to HOW TO NOT DO IT!  Let's be honest.  We all have ideas that stink and do not work out from time to time.  We are not here to "pile on" people who had decent ideas that did not work out.  We all can feel bad for good people who chased a dream that died. 

This space will draw attention to innovation and entrepreneurship failures that fit the category, "What were they thinking?!" Failures so big or ridiculous we all need to learn a lesson from them. 

As we come to the end of another year, here are my two picks for the "What were you thinking" prize for 2011.  These are the business school case studies of tomorrow on innovation and entrepreneurship gone bad.

What were they thinking????  Lesson: INNOVATE OR DIE. 

Founded in 1971 by the Borders Brothers, Tom and Louis, while in college at The University of Michigan, then acquired in 1992 by Kmart, they stopped making a profit in 2006.  In February 2011, they filed chapter 11 and closed its doors in September. 

If you boil down to one underlying strategic error Borders made, it is this: LACK OF INNOVATION.  They were never first movers on anything.  They were forever "come-along" "me-too" players in the book selling industry when the internet and Amazon changed everything. 

  1. Giving their online business over to competitor Amazon was a huge mistake.  It was a branding message to the market, "We really fell behind, and want to make money off this internet thing, so Amazon does it better than us, so buy from Amazon."  Unbelievable!
  2. Ever hear of Kindle and Nook?  Absolutely.  Ever hear of Kobo and Cruz?  Me neither.  Too late to the e-book and e-reader game as well.  The CEO and Board of Borders failed their investors, ruined the brand, and fell behind in the book seller race never to catch up.  
  3. Borders majored on the minors and minored on the majors.  Again, by being behind the times instead of leading the times, Borders decided it would be a good idea to invest into CD sales of music when iPod and the Apple Store were revolutionizing the music industry.
  4. Bad management also plagued Borders.  Too much debt, expanding too much during the real estate boom years, and their branding and marketing failures are now a lesson that B-School case studies will teach for years to come on HOW TO KILL A BUSINESS.

What were they thinking? LESSON: INNOVATE AND DIE.

When CEO Reed Hastings got over-confident and then lost 800,000 customers, you have to ask, "What were they thinking?"  The market understood that Netflix would eventually raise prices.  Streaming content means licensing costs from content generators.  People get that.  They will compare on demand from their cable provider versus Netflix. 

But call the red envelopes we get in the mail to buy movies Qwikster?

After losing 800,000 customers their shareholders panic.  Then, those they buy content from want more money up front just in case they are a little short on cash.  Then, being short on cash, Reed Hastings has to go to the capital markets for money.  We get it.  Netflix is toast.

We do believe streaming video is the future of entertainment.  We also believe the content generators are looking for ways to eliminate the middle man distributor like Netflix and vertically integrate (MBA speak for "do it yourself). 

It was nice while it lasted.

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