14 Bad Business Moves that Sank the Ship

14 Bad Business Moves that Sank the Ship


Everybody makes mistakes. Unfortunately for these businesses and businessmen, the mistakes they made led to the total annihilation of their companies, or nearly did. Want to run your company the smart way? Don't let history repeat itself -- heed these bad business decisions.

Bad move: Refusing to adjust
The culprit: Henry Ford

When Henry Ford unveiled the Model T in 1908, it was an instant revolution in the American auto industry. With its super-light steel alloy construction, trusty four-cylinder engine, two-speed “planetary” transmission and low cost, it changed the way cars were built and sold. Unfortunately, almost 20 years later, the auto crowd was looking for more excitement. And it was now being provided by Ford’s competitors, with their more powerful 6-cylinder engines, smoother 3-speed transmissions, and new, sophisticated styling. But stubborn Mr. Ford clung to his masterpiece, refusing to update its design. By 1927 the company had lost so much ground that Mr. Ford had to halt production for six months just to give himself time to design a new car. Who knows how long it would have taken if his son, Edsel, hadn’t immediately stepped forward with new plans – plans he had been gathering from the company’s designers behind his dad’s back. The resulting Model A would be the company’s salvation.

Bad move: Fighting fire with more money
The culprit: Lehman Brothers Holdings, Inc.

Lehman Brothers was a large investment firm many of whose holdings were in real estate and sub-prime mortgages. This meant most of its income depended on people paying off their mortgages. Unfortunately, when the subprime mortgage crisis began to take hold in 2006-2007 and people began going delinquent on their mortgages, it meant Lehman Brothers’ finances were in jeopardy. Whereas selling off their huge shares of failing mortgage propriety might have helped them, they were either unable to do so, or chose not to. Instead, they decided to take out enormous loans based on their liquid assets, then reinvest the borrowed money into the (still failing) mortgage propriety. This did not work, and the company soon found itself in even deeper debt than it had been. Finally in 2008, Lehman Brothers was forced to declare bankruptcy – the biggest bankruptcy yet in American history.

Bad move: Trying to fool everyone
The culprit: Enron

In early 2001, the Houston-based energy company was known as a leader in natural gas, electricity, paper and communications, and had been named America’s Most Innovative Company by Fortune Magazine for six consecutive years. But had the praise been a Heisman trophy and the company a star quarterback, he would not have been sleeping well at night. For whatever reasons, the company had lost a great deal of money in previous quarters – the equivalent of the quarterback getting deeper and deeper into the ‘roids. But rather than playing honest, the Enron quarterback and its accounting firm wide receiver, Arthur Andersen, had decided to fudge numbers, shred documents, make deals with nonexistent companies and do anything in their power to put on the act of a healthy, successful company. Needless to say, once the deception was brought to the surface, the world lost trust in Enron and Andersen, and their reputations deflated like a popped Goodyear blimp. The scandal became a beacon of warning in the business world, even warranting its very own Wikipedia page.

Bad move: Passing on the deal
The culprit: Ross Perot

There was a time, 1979 to be exact, when software giant Microsoft was a fledgling, 28-employee startup worth $2 million. Perot, then head of the much bigger Dallas-based Electronic Data Systems, was considering buying the company to assist in Perot’s plan of creating standardized hardware-software packages for banks. Perot and 23-year-old Microsoft head Bill Gates briefly negotiated the price, which was somewhere in the tens of millions. (Perot recalls $40-60 million while Gates recalls $6-15 million.) Whatever the figure was, Perot thought it was too high, and he and Gates parted ways without much more deliberation. Of course, Microsoft is now an 89,000-employee company and Gates is the world’s third richest person. Perot, though by no means much worse off, ranks at number 72 in the US. It seems hindsight is always 20-20.

Bad move: Thinking with your ego
The culprit: Napoleon Bonaparte

In 1803 France made a treaty with Spain, and Napoleon acquired the Louisiana Territory, the stretch of land that runs roughly from New Orleans up to the Canadian border, from the Mississippi on the east to the Rocky Mountains on the west. France had plans to expand their empire there, using the French-owned island nation of Haiti as a stepping stone. Things began to go awry, though, when a Haitian revolt managed to disrupt French control of the island. Disappointed about the loss, Napoleon began to rethink his plans for a North American French kingdom and made the hasty decision that he no longer needed the 828,000 square miles of the New World he had just acquired. He decided to sell it to the United States, just 20 days after acquiring it, for a paltry $15 million, or about 3 cents per acre. Fortunately, as Napoleon was making this decision, US negotiators were on their way to offer France $10 million just for the city of New Orleans. Needless to say they were surprised by their speedy acquisition of the port city and the half-continent bonus that came with it. It was a very convenient deal for one side, and a historically bad business decision for the other.

Bad move: Not thinking ahead
The culprit: IBM

In 1980, the first personal computers were being created, and IBM was pioneering the design. They were looking for an operating system to install on their computers’ hard drives, and approached Microsoft founder Bill Gates to create one for them. The program Gates wrote was a fairly simple interpreter called PC-DOS. IBM paid Gates a one-time fee for developing the program and began installing it on all of their computers – but for reasons that haven’t yet been adequately explained, IBM overlooked the fact that Gates still retained ownership of all of that pesky source code. And so, almost as soon as IBM began making profits selling their new PCs equipped with PC-DOS, Microsoft started making a fortune selling their new operating system, MS-DOS, to all of IBM’s clone competitors. Way to drop the ball, IBM.

Bad move: Letting the fish swim away
The culprit: Xerox PARC

The Palo Alto-based IT development company Xerox PARC spent most of the ‘70s developing a user-interface for their own brand of personal computer. Finally, in 1981, they released the Star, a computer with a desktop-style work screen that made use of icons, windows, menus, radio buttons and check boxes, with a mouse-style pointing device that could be used to manipulate items on the screen. What they had created was viewed by many as extremely ahead of its time. However, not fully realizing the business potential of their creation, they neglected to adequately market it, and the Star failed to do much beyond gathering dust. Fast forward to 1984 when the Apple computer company, having had the opportunity to view PARC’s work, released their Macintosh complete with desktop interface, icons, menus, radio buttons, check boxes, and a mouse pointing device. Under Apple’s much more skillful marketing, the Macintosh was a huge success, the desktop interface became the standard in PCs, and most of the credit went to Apple. In a final bit of irony, PARC tried to sue Apple years later for infringing on its technology. They were overruled by the judge, who said they had just waited too long.

Bad move: Not giving full consideration
The culprit: Decca Records

Producer Mike Smith was in his north London studio in early 1962, auditioning a new band hoping to sign with his record company, Decca. The band was young and upcoming, and had been attracting attention for their live shows. Smith listened while the band played 15 songs, including originals and covers. He told them he’d get back to them with his decision and went to talk it over with the label. The band’s obvious talent and popularity with fans notwithstanding, the label was concerned with the recent slowdown of guitar-driven music in pop culture. Without further consideration, they rejected the band with the line, “guitar groups are on the way out.” The band soon signed with another label and went on to rack up major chart success, completely turning around the dip in guitar-group interest and creating a massive new trend in guitar rock. Yep, they were the Beatles, and Decca’s passing became known as one of the biggest mistakes in music history.

Bad move: Being stubborn
The culprit: W.T. Grant stores

The hugely successful store chain was dominating the downtown mass-merchandise market until the rise of suburbia changed the shopping patterns of the American family. Being slow to react to this change, Grants began to bleed revenue as shoppers increasingly went to other stores (such as the very suburbia-friendly Kmart). A wiser store chain might have taken measures to pinch off excess spending, tighten up operations and adapt to the new style of shopper. What Grants did instead was stubbornly try to make their template fit, no matter what resulted – including having to borrow money to pay company dividends. The company even went so far as to try to bring in customers by famously offering store credit cards to “anyone that breathed,” punishing employees who didn’t meet credit card quotas with real, actual hazing. Of course, the company didn’t survive long past that point. (There are no reports on which fraternity was responsible for making business decisions.)

Bad move: Getting cocky
The culprit: John DeLorean

DeLorean was a young, savvy auto industry executive who had pioneered well-respected machines like the Pontiac GTO and the Firebird in the ‘60s and ‘70s. Wanting to strike out on his own, he started the DeLorean Motor Company in 1978 and created his own brand of sports car, including the one made famous in “Back to the Future.” But despite the hype and the popularity of his cars, sales slumped and the company started losing money. There are a few tactics an auto manufacturer can employ to save itself, but being a rebel, DeLorean tried to do it fast and dirty. In 1982 he tried to finance a $24 million cocaine deal, and was promptly arrested. His lawyers were able to get him acquitted despite piles of evidence against him, but his reputation never recovered. The DeLorean still remains a cult favorite among auto enthusiasts, but it’s unlikely you will ever see one.

Bad move: Gambling with trust
The culprit: Preston Tucker

Preston Tucker, a dashing rogue of an auto manufacturer, was determined in 1946 to create his own line of new dream cars to satisfy the public’s craving for flashy, post-war autos. He set out to establish Tucker Corporation and leased an auto manufacturing plant in Chicago, with the stipulation that he needed to raise $15 million in startup capital to keep the plant. Not wanting to negotiate with the usual venture capitalists, which would have mitigated his control of the company, Tucker decided to seek other alternatives to raise the money. This included selling dealer franchises, stock, and even custom car accessories, all contingent upon his manufacturing the cars at a future date. A wrench was thrown into the works, though, when the National Housing Agency tried to conscript his plant to build prefab houses. Things got worse when the Securities and Exchange Commission began investigating him for fraud based on all of the payments he had been receiving for cars he hadn’t yet built. Burdened by legal hassles and the struggle over company assets, Tucker lost the company – and his reputation. Only 51 Tucker autos were ever assembled.

Bad move: Putting novelty over practicality
The culprit: R.J. Reynolds

In 1988, the R.J. Reynolds Tobacco Company set out to introduce a new type of cigarette that would burn cleaner and deliver fewer toxins to smokers and those around them. The Premier cigarette took several years and over $1 billion to produce. It looked like a normal cigarette, but utilized a complex vaporizing system that heated and “aerosolized” the tobacco, resulting in less smoke and fewer harmful side effects while functioning as a “clean” nicotine delivery unit. At least on paper. In actuality, smokers hated it because it was difficult to light, they had to inhale harder to use it, and it left a charcoal-like aftertaste. Deriders criticized it because it could be used to deliver other things besides nicotine (like drugs). The product was dropped from the market after less than a year. How it even passed the trial phase is a mystery.

Bad move: Overestimating your customer base
The culprit: Pets.com

Remember those TV commercials with the talking dog sock puppet, the one holding the microphone? You probably do. Now have you ever bought anything from Pets.com? Probably not. The startup pet supply company made a huge name for itself through print ads, radio, TV, and even a Pets.com magazine, where they talked pet owners into buying their pet supplies online with the catch phrase, “Because pets can’t drive!” Unfortunately, pet owners demonstrated that they themselves could drive, sticking mostly to retail pet stores like Petco and PetSmart and bringing in less business than the company expected. Having spent a boatload on advertising, and on its well-stocked supply warehouses, the company found itself far below the critical mass needed to stay afloat, and was forced to shut down just two years after it opened. It now stands as the historical icon of dotcom-era business disasters.

Bad move: Getting greedy
The culprit: Washington Mutual

The “everyman’s bank,” Seattle-based WaMu, built its empire on savings and loans, including sub-prime mortgages. The problem with these mortgages is people often sign up for them simply because of the attractive introductory rate. Then, after a year or so when the introductory rate gives way to a normal one, they discover they can’t afford it, and the loan defaults. And the problem with WaMu was they kept signing people up anyway. Things got ugly when the subprime mortgage crisis took hold and mortgages started defaulting across the board. WaMu was suddenly left with a staggering inventory of foreclosed homes – homes whose market values were tanking due to sheer volume. Add to this the resulting stock value plunge the company suffered, plus a 10-day run on the bank that left WaMu with almost no liquid cash on hand, and the giant had no choice but to allow the FDIC to seize the bank and its assets. It is now owned by the JP Morgan banking chain, which was able to buy it for a measly $1.9 billion. Washington Mutual is now known as the biggest savings and loan bank in the nation’s history ever to collapse.