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Saturday, August 12, 2017

It seemed a good idea at the time

As I’ve wandered through the business landscape over the past 4 decades, I’ve often observed people making business decisions that I was pretty sure were going to end up somewhere between bad and appallingly, astronomically bad.  And I’ve certainly been guilty of making a few of those kinds of decisions myself.
Almost without exception, my bad decisions and those I’ve seen others make resulted from one of three things. The decision-maker: 1) didn’t bother to get all the relevant facts; 2) made invalid assumptions based on ego, wishful thinking, or fear; and/or 3) didn’t trust the input of their own advisors. As you read through the following, feel free to be entertained and feel superior – but I’d suggest you also take them as cautionary tales; great examples of what not to do:

1) How many zeros? In 1977, the senior execs at 20th Century Fox made an astonishingly short-sighted decision. They signed over all product merchandising rights for any and all Star Wars films to George Lucas – in exchange for a mere $20,000 cut in Lucas’ studio paycheck. The combined revenue from merchandising is estimated to have exceeded three billion dollars, and continues to grow annually, making it the most lucrative deal ever struck between an individual and a corporate studio in entertainment history. (This one is courtesy of my wonderful reader Dr. Ilona Jerabek, from an article on her website.)
2) And your hair’s weird, too.  In 1962, the Beatles auditioned at the London office of Decca Records.  The executive in charge of talent rejected them: he thought they sounded too much like a currently popular group called The Shadows (who?), and he told Brian Epstein, their manager, “We don’t like your boys’ sound. Groups are out; four-piece groups with guitars particularly are finished.” Well over 2 billion Beatles albums have since sold worldwide.
3) We’re a serious business, thank you very much.  In 1876, William Orten was President of Western Union WU +0.72%, which had a monopoly on the most advanced communications technology available, the telegraph. Orten was offered the patent on a new invention, the telephone, for $100,000 (worth about $2M in current dollars). He considered the whole idea ridiculous, and wrote directly to Alexander Graham Bell, saying, ”After careful consideration of your invention, while it is a very interesting novelty, we have come to the conclusion that it has no commercial possibilities… What use could this company make of an electrical toy?” Two years later, after the telephone began to take off, Orten realized the magnitude of his mistake, and spent years (unsuccessfully) challenging Bell’s patents.
4) Say cheese! The Eastman Kodak company developed the first digital camera in 1975, then proceeded to sit on it (and the core technology for the cell phone, as well).  They decided not to develop it because they were afraid it would cannibalize  their film business (at one point they had a 90% share of the US film market.)
5) Say cheese, part II. In the early ’80s, Fuji entered the US film marketplace with lower-priced film and supplies, but Kodak management believed that US consumers would never abandon their homegrown brand. In 1984, Kodak passed on the chance to be the official film of the 1984 Los Angeles Olympics. Fuji won the rights, which gave them the strong foothold they needed to catalyze their growth in the US marketplace.
Kodak never fully recovered from these and other poor decisions; in 2012 the company filed for Chapter 11 bankruptcy.
6) Did anybody phone home? In 1981 Amblin Productions called the Mars Company and offered a simple cross-promotional opportunity: How about if we use M&Ms in our new film, giving you free publicity, and in return, you can promote our film in your packaging? The advertising and marketing folks at Mars said “No.”  The film was ET the Extra-Terrestrial, and the rest is history.  Reeses Pieces, the not-nearly-as-well-known M&M competitor, saw sales jump 65%  in the months after the film was released featuring their product.
7) Hot under the collar.  In 2000, Gerald Levin, the chairman of Time Warner, was so confident in the deal he had made to merge with America Online, that he decided to forego placing a collar on the transaction. A collar enables the seller—in this case Time Warner—to revisit the terms of the transaction if the buyer’s stock falls below a certain price. Almost as soon as the merger was announced, and before it was completed, the Internet bubble burst and AOL shares plunged 50%. Without a collar, Time Warner wouldn’t be able to renegotiate the deal. Time Warner execs urged Levin to re-think the deal, but he didn’t.  The rest is history, and Time Warner shareholders are still paying for his stubbornness.

Of course, it’s easy to see the folly of these decisions in retrospect; hindsight is 20/20, and no one can make the right decision all the time.  But I suspect if each of these unfortunate executives had approached these decisions with a little more curiosity, a little more open-mindedness, and a little less certainty about the rightness of their position….we might all be using Western Union Kodak smartphones.
By Erika Anderson