Who doesn’t make mistakes? It’s a part of life and serves as a stepping stone for potential success in future. Many of the famous people went on to achieve great things even after making costly mistakes. In fact, this is how learning history is the most beneficial; to learn from past mistakes. Fortunately for most of us, our worst mistakes are minuscule compared to some of the massive corporate blunders in business history. Whether it be the Video game crash of 1983 or the downfall of Nokia, history has shown us how some mistakes led to the downfall of the giants of their industry or the industry itself. Let’s take a look at some of the biggest and costliest corporate mistakes in business history.
The Video Game Crash of 83′
The crash of 1983′ is something most of the gaming enthusiasts know about. It is interesting to note how few mistakes crippled the fastest growing industry of that time. The revenue of the industry fell from 3.2 billion $ in 1983 to 100 million $ by 1985 (a drop of almost 97 percent). Many prominent companies went bankrupt or stopped making games entirely. Equally toy stores who had been the main distributors for video games stopped promoting them owing to the losses they suffered. Analysts expressed doubts over the revival of video gaming consoles and its software after the crash. If it weren’t for NES (Nintendo Entertainment System), we may not have a video gaming console industry today. So what exactly led to this disaster?
The crash was attributed to various factors including market saturation in the number of gaming consoles and available games, and diminishing interest in console games in favour of the computer which was getting priced comparably. Gamers had dozens of console choices to choose from, which led to confusion. In the early ’80s, Atari had unsuccessfully sued to regulate third-party development for their consoles. This allowed every small studio or company to try their hands on making video games. Next, we know the market was flooded with crap video games trying to be the next hit. Even companies like Quaker Oats and Purina Dog Food joined the wave.
Fall of Atari
This course of crap games culminated with several high profile flops created a backlash against console games. Atari VCS (or Atari 2600) was the most popular console at that time. Atari made an adaption of hit arcade game Pac-Man but it was a highly watered-down version which received a lot of criticism. To make things worse, they overestimated the success of the game and overprinted the cassettes. They just didn’t learn it the first time and did it again when they made the licensed game of hit movie franchise E.T. The Extra-Terrestrial – a game so bad that it is still considered the worst game ever by many. As a result of overprinting and overestimating the success of these titles, Atari suffered huge losses and buried millions of never sold copies in a landfill in New Mexico. These mistakes of Atari (including the failure to regulate third-party development) were the leading cause of the crash of 83′.
New Coke Formula
In the ’70s Coca-Cola had been the best-selling drink but they were losing the market share. Pepsi was slowly nibbling away the market share from Coca-Cola. Pepsi achieved it by gradually improving the taste of their drink. Having lost a lot of market to Pepsi, Coca-Cola decided to beat Pepsi at their own game; they decided to tweak the formula of their popular drink. The risk was huge so Coke wanted to play it safe; after performing approx 200k double-blind placebo-controlled test, they concluded that the new formula not only beat the original one but also the Pepsi. Despite all efforts, hype, test and advertisements, Coke II failed miserably. It was such a big disaster, Coca-Cola never admitted how much money they lost exactly. Soon after the release of Coke II, they took a step back and announced the return of the original drink under the name ‘Coca-Cola Classic‘. But why did the best Coke ever fail?
Going All In
This episode till now serves as a cautionary tale to what happens when you change something really popular. Lab results are not always a good representation of the real world. Coca-Cola’s decision to replace its 99-year-old recipe entirely with a new Coke was a blind gamble. They could have played it safe if they launched the new drink alongside the original rather than replacing the old one.
In most of the tests, they conducted for the new Coke, they had a very high approval rate. But, they failed to comprehend how few who don’t like the taste might influence the others. Coke II was received well initially – most Coke drinkers responded positively for the new drink. However, this soon changed as it met with heavy protests in the Southeast. More and more people were resenting the new formula now. Coca-Cola received nearly 400k letters and calls from the people complaining about the new Coke.
Law of Scarcity
Demand for anything is always greater when supply is limited. People want what they can’t have, and so scarcity creates value. When Coca-Cola was testing the new Coke II, it was special and limited. Respondents were trying something very few people have tasted before or could taste again. However, when they released the new Coke, old coke became rarer; hence, more valuable.
“Once a new technology rolls over you, if you’re not part of the steam roller, you’ve part of the road “– Stewart Brand
Above quote aptly explains how Kodak messed up. Kodak’s missed opportunities to adapt to a revolutionary technology (digital photography) in which it had a lead – they invented it in 1977 and still failed to transition to it decades later – serves as a reminder to what happens when you try to stop the revolution. During its peak, Kodak captured most of the US film market share. Immense success in the film industry made it product-oriented rather than focussing on its customers’ needs. As a result, Kodak filed for bankruptcy in 2012. How did Kodak mess it up?
Failed to reinvent itself
Kodak made so much money on film, it didn’t introduce the technology at the time to the public. Kodak continued its focus on traditional film cameras even when it was clear that digital photography was the future – They just couldn’t let it go.
Kodak spent more than $500 M to develop and launch Advantix film and camera system. Advantix was a digital camera hence it allowed the users to preview their shots before. Yet it still used film and emphasized print as Kodak was a giant of film, chemical, and paper business. Kodak wanted to use digital photography to boost its film and analog photography sales rather than a standalone product. As a result Advantix flopped. Who will buy a digital camera and still pay for film and prints? Kodak failed to realize that online photo sharing was the new business, not just a way to expand the printing business. When it finally got into the digital market, Kodak was selling cameras at a loss and couldn’t compete with the market.
Lack of distant vision
Kodak couldn’t adapt to the changing needs of the market as it was focussing on short-term goals rather than the lasting ones.
Chunka Mui via Forbes:
“In 1988, Kodak bought Sterling Drug for $5.1B, deciding that it was a chemical business, with a part of that business being a photography company. Kodak soon learned that chemically treated photo paper isn’t all that similar to hormonal agents and cardiovascular drugs, and it sold Sterling in pieces, for about half of the original purchase price. In 1989, the Kodak board of directors had a chance to take make a course change when Colby Chandler, the CEO, retired. The choices came down to Phil Samper and Kay R. Whitmore. Whitmore represented the traditional film business, where he had moved up the rank for three decades. Samper had a deep appreciation for digital technology. The board chose Whitmore. For more than another decade, a series of new Kodak CEOs would bemoan his predecessor’s failure to transform the organization to digital, declare his own intention to do so, and proceed to fail at the transition, as well.“
Mr. Whitmore said he would make sure Kodak stayed closer to its core businesses in film and photographic chemicals.via The New York Times (12/9/1989)
Excite turned down Google
Google was founded by Larry Page and Sergey Brin in January 1996 when they were both PhD students at Stanford University. In the beginning, they called it “BackRub”. Back in 1999, Excite was the no 2 search engine – second only to Yahoo – and Google was the new kid on the block.
Larry Page offered to sell Google to Excite for $1 million (though with the stipulation that Excite would replace their technology with Google Search tech). George Bell (CEO of Excite then) rejected the offer even when Vinod Khosla convinced Larry and Sergey to bring down the price to $ 750k. It is disputed that why did George make that choice. Excite was later on acquired by Ask Jeeves (now Ask.com) in march 2004. But had Bell accepted the duo’s offer, he would have made immense fortune from the deal. Excite’s refusal to buy what became a trillion-dollar company in 2020 is labelled by many as one of the biggest corporate mistakes.
Downfall of Nokia
Finnish papermaker – turned – phone vendor produced most of the top twenty best-selling phones ever. You might remember Nokia 1100 – Yes, the most sold phone till date. It was a pretty simplistic and cheap phone but its virtual indestructibility made it a legend – or at least the subject of internet memes. From absolutely dominating the mobile market to becoming nearly extinct, Nokia’s corporate journey has a lot to teach.
Failed to adapt
Nokia was the ‘millennial’s choice’ when it comes to mobile phone. For decades, Nokia remained at the top. Nokia’s decline started during the era of early smartphones – enter the iPhone and BlackBerry. It wasn’t just because of what they did wrong but also because of what others did right. Symbian wasn’t a competitor to iPhone’s IOS, and Nokia didn’t acknowledge it. They didn’t tweak Symbian much after its release in 2002 (It was good for the time it was launched but failed to provide a similarly efficient speed as IOS). Also, competitors were offering a lot more in the same price range which led to the shift of consumer base.
Excessive growth in the ’90s
The high popularity of the company’s mobile phones in the market between the years 1996 – 2000, made it difficult for the company to keep its supply chain intact. With such a high growth rate, all the resources of the corporation were devoted to keeping the supply chain intact. This excessive growth over the period led to the management to choose between innovation and growth financing.
Opaque Work Culture
The organisational fear was grounded in a culture of temperamental leaders and frightened middle managers. Middle management was scared of telling the truth because they feared being fired and top management didn’t bother to discuss it with their inferiors. This led to a very toxic work culture where the team couldn’t discuss the issues let alone fix them. The company capitalized on the short-term growth and felt satisfied, ignoring the wide market ahead.
P.S. If you liked this article, check out our other blog where we discussed psychology and its role in marketing.
For Exclusive Social Media Content Follow Us on: