Everyone makes mistakes, but certain companies have done some pretty stupid, illogical, or just downright dangerous things to maximise profits. Sometimes, companies fail by letting innovation pass them by, while others are active participants in their own humiliating collapse. Let’s explore the worst business decisions that bankrupted companies.
10. Shady Safety Systems
Have you ever heard of something so contradictory as a deadly safety device? Japanese automotive parts company Takata Corporations produced airbags that were far from safe between the late 1990s and 2018.
Reports from governments and companies like Honda indicated that 18 people died, and 180 people sustained injuries thanks to these dangerous airbags.
What made Takata’s airbags so deadly was the ammonium nitrate propellant inside them. This substance was used in the controlled explosion that causes airbags to deploy, instead of the standard propellant, sodium azide. When ammonium nitrate is exposed to moisture or temperature swings for a prolonged period of time, it becomes highly unstable.
In 1999, Takata switched to using this cheaper, highly volatile compound just to save costs. Over the years, numerous airbags deployed with excessive force, sending metal shrapnel flying through the car, killing drivers rather than saving them.
Even worse, it turned out that the company knew about these deadly airbags as early as 2009, and submitted fake test data and reports to consumers to cover up the dangers of their airbags.
After the scandal when this was discovered, the company haemorrhaged money until they declared bankruptcy in 2017, and millions of cars were recalled in the largest auto product recall in U.S. history. Worryingly, some of these potentially deadly cars are still on the road. To check your own airbag is safe, use this NHTSA’s Recalls Look-up Tool.
Most people assume that Blockbuster met its demise thanks to the rise of online streaming services. While that’s not far from the truth, the full story is far more awkward and embarrassing.
In fact, the founder of Netflix first proposed a partnership with the video rental giant. Entrepreneur Reed Hastings approached Blockbuster CEO John Antioco when Netflix was still just a small business with big ambitions back in 2000. He offered to sell his company, Netflix, for $50 million. However, Blockbuster bosses rejected the innovative entrepreneur, making the biggest mistake of their career, rejecting a company that’s now worth over 150 billion dollars. The idea was that Netflix become Blockbuster’s online brand, and Blockbuster would promote Netflix in its stores.
Blockbuster obviously felt that it had bigger fish to fry than a tiny mail-order DVD service, though. Although Hastings was sent packing, Netflix continued to grow until it became the multi-billion dollar enterprise it is today. In that time, the two companies developed an intense rivalry. During one conference call with analysts, Hastings complained that Blockbuster had ‘thrown everything at us but the kitchen sink’. The next day, Hastings received an actual sink in the mail.
Eventually Blockbuster declared bankruptcy in 2010. Perhaps they should have spent less time mailing plumbing fixtures around, and more time updating their business model.
8. Dumb Business Decisions: Picture This
Kodak may have invented the handheld camera, but over-cautiousness brought this tech giant to its knees. Founded in 1888, the company was over a century old when it filed for bankruptcy in 2012. Sadly, the famous camera and photo printing company failed to keep up with the changing times.
Having invented the digital camera themselves in 1975, Kodak were unable to actually manufacture the camera due to conservative inside forces that held them back.
In essence, Kodak lay the important groundwork for the age of digital photography, but fear of undercutting their own market meant they didn’t go digital themselves. This meant that by the time they were ready to manufacture the digital camera they invented, it was too late. Others were already dominating the market.
Once film and physical photo supplies became obsolete, Kodak ran out of money fast. It ended with $6.75 billion in debt, and had to let more than 50,000 employees go.
To this day, Kodak still focuses on selling print supplies and ink cartridges, but it’s very unlikely it’ll ever reach the profits it could’ve had. Now more than ever, in an age of ever-more futuristic tech, it pays to keep ahead of the times!
7. Fallen Giant
Enron was once the biggest energy broker in the world and America’s seventh largest company. The story of its downfall has all the elements of a great drama movie: whistle-blowers, death and lots and LOTS of money.
Enron filed for bankruptcy in 2001 when outsiders discovered that they had been falsifying and hiding accounts for years. Enron also took accounting firm Arthur Andersen down with them. It turned out that they had been partnering with this firm to hide their criminal practices. From frequently concealing large losses and debts to lying about profits to investors, Enron was involved in a range of shady dealings.
In 2001, Sherron Watkins, the Vice President of corporate development at Enron, noted irregularities in the company’s financial statements in an anonymous letter. Eventually, she notified the public, and chaos ensued. Through the exploitation of complex loopholes, top executives in the company had been recording projected profits as real profits, and hiding both debts and losses from investors.
Once found out, the executives involved in this extensive fraud scheme fell like dominoes – literally. After being called to give evidence at court, in 2002, the former vice chairman J Clifford Baxter was found dead in an apparent suicide. Kenneth Lay, the CEO and founder of Enron, died of a heart attack while awaiting sentencing. The lesson here is, don’t cook the books, folks.
6. Lacking A Novel Approach
When e-commerce giant Amazon was growing, other more traditional bookstores like Borders were struggling to keep up. Something that experts call ‘the Amazon factor’ may explain why some brick and mortar retail stores are failing one by one.
As more consumers turn to e-commerce to save money, traditional stores face a choice: adapt or die. This apparently fell on deaf ears at Borders headquarters. The bookstore did strike up a partnership with Amazon in 2001. But unfortunately, this wasn’t quite enough to stop them from falling victim to Amazon’s growing e-commerce empire.
Instead of adapting to trends, Borders made a series of stupid corporate decisions which ended up being their downfall. First, instead of moving to online sales, Borders decided to focus on expanding their store fronts and opening more stores.
Not only this, but they were too slow to adapt to the technological trends and release a branded e-reader to market. Amazon’s kindle came out in 2007, and Barnes & Noble released the Nook in 2009. But Borders didn’t release Kobo, their e-reader, until 2011.
Perhaps they should have taken a leaf out of Amazon’s book…
5. A Yak Of Insight
When anonymous messaging app Yik Yak hit the scene in 2013, it was an almost-instant hit with college students around the world. Providing an easy way to gossip and joke about goings-on, the app used location services to share posts between anonymous users in the local area.
At peak popularity, the app was valued at $400 million, but its move away from what gave it its appeal was largely responsible for its downfall. When pressure mounted relating to bullying and security threats, developers released updates that made it impossible to post without setting up a username. This, of course, removed the central appeal of the app. An influx of one-star reviews soon followed, and an already-dwindling user-base bid their last farewells.
Even before the unpopular updates, the app had begun to fall victim to a historic trend among other anonymous messaging apps, which tend lose their novelty over time. On top of this, driving many of the unpopular changes were difficulties monetizing the app due to the anonymity of its users. Eventually, the app was shut down and delisted in 2017.
It’s a tale of failed innovation, failure to pay attention to the histories of similar services, and inadvertently removing the service’s central appeal. But enough yakking, it’s time to moo-ve on.
4. Schlitz Creek
Schlitz Beer was once one of the biggest breweries in Milwaukee, and the best-selling beer in the United States. But the company is now known in business circles as an example of how not to do business. So much so in fact, that their disastrous decision-making process now has its own name: ‘the Schlitz mistake’.
Why? Well, throughout the 1950s the owner of Budweiser Beer, Anheuser-Busch, led a continuous assault on Schlitz. The two companies wrestled for the title of ‘America’s favourite beer’ from one another for years. In 1957, Budweiser took a permanent lead.
To compete with Budweiser, Schlitz beer decided to cut costs, which was one of their worst business decisions. Eventually, the beer was nothing like the original product that consumers loved. The taste had changed dramatically. Schlitz started to substitute fresh hops, the main flavouring ingredient in beer, for cheaper hop pellets.
But the real business killer was the next decision they made. Schlitz’s brewing technicians began to add a new type of anti-haze agent, known as Chillgarde, to the product. Schiltz’s rapid-brewing techniques meant that the unprocessed beer appeared unpleasantly cloudy when chilled, and the hope was that this addition would resolve the issue. Some observers noticed that this protein looked like mucus floating in the beer and sometimes appeared as white flakes.
Nobody wants mucus beer. After this slimy oversight, sales dropped off a cliff, and the company remains up Schlitz creek without a paddle.
3. Fizzing Out
Serial entrepreneur Richard Branson is one of the most successful people in the world, with a net worth of $4.2 Billion. But that amount of success also comes with its fair share of failures. One of Branson’s business brainwaves that you may not have heard of was Virgin Drinks. This endeavor saw Branson and his teams taking a stab at the beverage market, initially with a cola, and later with a vodka to match.
As the story goes, an aspiring soda-maker contacted Branson with a home-made cola recipe. When it turned out that people preferred the home-made soda to Coca-Cola or Pepsi, Branson launched Virgin Cola. It was doing well in the UK, silently taking over market share from Coca Cola.
However, the company got more than they bargained for when they took on one of the biggest companies in the world in their primary market. A misguided PR stunt made sure that Virgin Cola would never again appear on supermarket shelves. In 1998, Branson attended the USA launch of Virgin Cola, but his appearance was far from subtle. In a flamboyant display, Branson drove into and crushed a wall of hundreds of Coca-Cola cans.
Needless to say, Coca-Cola didn’t take it so well. They responded by pouring money into pressuring distributors not to work with Virgin Cola, forcing them to stock only Coca-Cola. In the end, Virgin Cola couldn’t even get stores to stock their soda. With no way to distribute their product, Virgin Cola and its offshoot, Virgin Vodka were discontinued, and the entire Virgin Drinks subsidiary disbanded in 2007.
I hear the Coca-Cola versus Virgin battle royale is going to be dramatized in the next Marvel film, with Branson in a colossal mech suit. I’d pay to see that.
2. Worst Business Decisions: Hyped to Death
Nowadays we often carry around powerful computers in our pockets. But it may surprise you to find out that it wasn’t Apple or Microsoft that pioneered this idea. In fact, a company called Osborne Computer Corporation released the very first portable computer in 1981.
However, despite its innovative beginnings, the Osborne Computer Corporation is actually most famous for how it failed. In an attempt to recoup increasing losses, the company made history with a pretty crazy decision, and not in a good way. Despite releasing the Osborne model 1 in 1981, the company showed a newer model to the press, before the first one was even ready to come to market.
As a result, customers and businesses cancelled their pre-orders of the Osborne 1 in droves. Who can blame them for preferring to wait for a superior model?
Thanks to all of the cancellations, Osborne Computer Corporation ran out of money before they could even release the updated computer. In 1983, after months of low sales, OCC went from being a computer giant with Apple potential to a total bankruptcy case. How about that for a system failure?
1. That’s Nuts!
Some of these company decisions have been pretty insane. But the company up next on the list wins the medal for possibly the stupidest, most irresponsible, and worst business decision a company has ever made.
The Peanut Corporation of America, or PCA, was a peanut processing plant that was responsible for about 2.5% of America’s processed peanuts. By most standards, it was a small company, but the scandal they created propelled the company into the public eye.
After 9 people died and thousands of people became sick from salmonella poisoning, the FDA found contaminated peanuts to be the cause. PCA sold and shipped these poisoned peanuts, and some of them were even headed for schools. But that’s not the worst part. It turned out that when in-house testing found the salmonella poisoning, CEO Stewart Parnell told his staff to ‘just ship’ the products. On top of that, PCA shipped peanut products accompanied by falsified safety certificates to try and cover up the contamination.
In January 2009, PCA finally issued a product recall for some of its products, and many more followed in the subsequent days. Less than 24 hours after one huge, final product recall, the company filed for bankruptcy. Stewart Parnell was sentenced to prison for life, and thankfully for us, this nutcase won’t be shipping any more lethal legumes.
So, which of these 10 bad business decisions did you think was the craziest? Let me know in the comments down below.