Running a business is not for the faint of heart. One day, you could be on top of the world; the next, it all could come crashing down. I’m not being dramatic, either. Some companies make one simple mistake, and just like that - pouf! They’re out of business.
If you want to make a ton of money in business and potentially become 100% location-independent, there are certain rules in business that need to be applied. Of course, some magic enters into the equation as well. If huge corporations with several brains behind them can fail, then us little guys can suffer similar fates - if we don’t take heed.
Although the walk isn't an easy one, having a business of your own and the freedom that comes with it is worth it. We just have to be strategic, plan ahead and think of possible problems that may arise, as well as think of what we would do if they were to occur.
Since I know that you want your business to have longevity, I’ve compiled a list of 15 companies that were forced to close their doors, as well as the takeaway lessons so it doesn’t happen to you.
Here are 15 businesses that died because of one mistake.
Ever heard of a company called Meerkat? Well, Periscope blew it to smithereens.
Meerkat was a live-streaming app. You could start a live broadcast on your phone for anyone’s viewing pleasure. The company received millions in funding, as investors really thought it would be the next big thing. They weren’t the only ones who found it to be a great idea. Twitter acquired Periscope, an app that does the exact same thing, and launched it a few weeks after the release of Meerkat. To add salt to Meerkat’s wounds, Twitter then limited Meerkat’s access to its social graph, on which it had depended. A few months later, Facebook added live streaming to its app, and Meerkat simply couldn’t keep up with the competition.
The Mistake: To combat competition, Meerkat chose to put loads of money into celebrity endorsements instead of focusing on improving the user experience and building a community. Those endorsements didn’t amount to much in the end.
The lesson: It’s up to you as a business owner to be quick on your feet. Always think about your next move, possible obstacles and solutions when writing up your business plan. Be judicious about how you spend your money. Make wise investments and always think about the return.
Secret was an app that allowed users to send anonymous messages to friends and family. It managed to raise $35 million in venture capital in just a few months. Still, despite all the backing it received, it didn’t survive. While it seemed like a great idea, people soon started using it to cyberbully others. The founder said that the app ceased to meet his initial vision, and he decided to return the unused money to its investors.
The mistake: The app was flawed because users could only see 1st and 2nd degree connection posts. So, many first-time users would log-in and see no content. If first-time users don’t have a great first experience, they won’t return. Above, I spoke about cyberbullying. From the get-go, Secret had no community rules or a reporting system in place. By the time they’d added that, the app was already known for being a place where you could say whatever you wanted - even if it was considered hateful.
The lesson: First impressions are everything. Make sure that your sales page or web site or Instagram feed is on point. They’re oftentimes the first point of contact between you and your audience. You have to make sure that your audience wants to return.
Twitter owned a 6-second video app called Vine. Many stars were born out of posting short, funny clips that garnered fans across the world.
However, Twitter has not been very profitable as of late, and they’ve been cutting jobs left and right. Naturally, they decided to lose dead weight, which meant, “So long, Vine.”
The mistake: Vine never recovered after Instagram launched its video feature a few years ago, stealing a chunk of Vine’s users. So, Vine’s stars followed their fans, migrating to Youtube and Facebook. Why weren’t Viners more loyal? They felt unappreciated by the company. YouTube helps the creatives generate revenue. Vine didn’t offer that same support.
Twitter bought Vine for $30 million, and never learned how to truly take advantage of the app. It did try to rectify the loss-of-users situation by spending $30 million on a marketing service/talent agency to help Vine stars expand their reach. But, it was too late.
The lesson: Appreciate the people who use your service, or they will leave. What value do you bring? Your clients/customers need to have an incentive to stick around.
Yahoo is a search engine and an email service that started 21 years ago. In just three years, it became the search engine that most people had as their homepage. Yahoo was once worth $125 billion, but it was recently sold to Verizon for just $4.8 billion.
The Mistake: As previously mentioned, Yahoo experienced fast growth. Its executives and founders did not manage it very well. They lacked internal communication, and its top talents were replaced by less experienced individuals. Yahoo’s products then started to lessen in quality. Many CEOs passed through Yahoo’s doors; all failed to put a solid company structure in place. Marissa Mayer, in particular, spent billions on strategies that didn’t pan out, buying at least 50 start-ups that all mostly failed.
The lesson: Make a list of business expenses and think about the return on investment. Don’t just buy for the sake of buying. Each purchase has to make your business more profitable in the long run.
In July 2008, Myspace was more popular than both Google and Yahoo Mail. Members were able to create and fully customize their own Myspace pages. Then, Facebook came along and gave it a run for its money.
The mistake: Myspace took its sweet time to create a mobile app. It rolled out its own app a year after Facebook did. With more and more online businesses popping up at the time, businesses were in need of an online hub where they could find their target audience. Facebook provided that. Myspace didn’t. Mike Jones, the former head of MySpace, said that he believes Facebook crushed MySpace because Facebook took the social networking concept to new heights. MySpace was merely the introduction.
The lesson: Don’t get too comfortable. Always try to surpass what you’ve done before, and keep an eye on your competitors.
Blockbuster was a provider of home movie and video game rental services via video rental shops. Hollywood box-office receipts slowed down by 2% in 1994. Consequently, there were far less movie rentals. Blockbuster figured that adding impulse purchase items, like candy and toys, would be a great way to make up for the lost revenue.
The mistake: Blockbuster failed to use social networks and rating systems to push its releases. Their mistake was their failure to innovate. Evidently, Netflix comes into the picture at some point. But, it cannot be blamed for the demise of Blockbuster. Blockbuster failed to keep up with the times.
The lesson: Always be sure to add more value over more things. Think critically. When Hollywood box office receipts started to drop, it didn’t mean that people were no longer interested in at-home entertainment. People still needed something to do with their time.
9 American Apparel
American Apparel is known for its ads and its minimalist clothing that is Made in USA. In November 2016, the company filed for bankruptcy. Nothing is set in stone just yet, but it’s unlikely that their stores will receive any buyers.
The mistake: According to the company, founder Dov Charney’s legal troubles were among the reasons for the company’s decline. Add that to increasing debt levels and drops in sales, as well as increasing levels of debt and drops in sales.
The lesson: Treat your employees well. Treat your place of business like... a place of business. American Apparel set itself apart from the competition; their items were produced in the United States and they weren’t linked with child labor or unfair labor practices. This justified the high price of its clothing to the consumers. However, its founder was accused of sexually assaulting models and employees. He was accused of using ethnic slurs against workers and keeping videos on a company server of him having sex with models and employees. Needless to say, the board gave him the boot.
RadioShack is an American electronics store founded in 1921. It once had stores in Canada, Mexico, Australia and the U.K. But, by February 2015, it was only operating in the United States and Mexico. It filed for Chapter 11 protection under the United States Bankruptcy law.
The mistake: A shift was taking place; more and more electronics sales were happening online. RadioShack decided to stick with brick-and-mortar locations, instead. Between 2013 and 2014, most of its sales were coming from cellphones, which generated poor profit margins. Management was unstable, and the company made the error of taking a loan from Salus Capital. As a result, it had to close more than 200 stores per year. What’s more, RadioShack had many stores that were too close together. They started having inventory problems, and there was often insufficient inventory in one area.
The lesson: Do proper market research. Stay current. Before taking a loan, consider the feasibility of you paying it back.
Sears was a department clothing store. Do you remember those Sears catalogues? Word on the street is that Sears has lost its sales to Walmart and Target. It has been closing down stores and selling real estate for years. It has shut down half of its locations since 2007, which represents a loss of over 137,000 jobs.
The mistake: Sears employees weren’t being adequately compensated. There weren’t any raises in sight, which made it hard to hire and retain employees. Furthermore, customer service was not made a priority by the company, and some of their locations weren’t properly maintained. Sears was also slow to integrate e-commerce into its sales strategy, unlike its competitors.
The lesson: An ugly storefront will deter customers and decrease the value of your business. In your case, your storefront may be your Instagram page or web site. Make sure everything is properly curated and maintained.
Zellers was a Canadian chain of clothing stores (it’s like the Canadian Sears). It was known for having the lowest prices around until Walmart came along with cheaper prices. So, Zellers needed to reposition the brand, but ultimately failed to carve a new lane for itself. Wal-Mart also placed more focus on customer service, as there was also a higher number of employees per store in comparison to Zellers.
The mistake: Instead on working on branding, Zellers focused on buying Towers and K-Mart locations across the country in an attempt to keep Canadian customers out of Walmart - but that didn’t work.
The lesson: Your company’s public perception is of the utmost importance. Make sure that you’re building a solid and consistent brand. Keep your ears to the street and do market research to stay up to date on how your audience perceives your company.
5 Target Canada
Good ‘ol Target decided to expand North of the border and bless Canadians with its amazing prices. Canadians often saw their local Zellers closing down and being replaced by Target Canada. The store opened 124 stores all in one shot. It was actually Target’s first attempt at international expansion. Alas, it didn’t quite work out as planned.
The mistake: Target figured that buying store leases of Zellers (for $1.8 billion from HBC) was a great business move, as it wouldn’t have to build its own stores. However, Zellers stores were poorly configured and run-down. They were also in locations that weren't frequented by Target’s target audience (the middle class); setting up shop in crummy locations diminished the image and appeal of Target Canada. Inheriting many awful locations from a dying, low-end retailer was at the heart of the damage to Target’s cheap-chic allure in Canada.
The lesson: Target should have gone with fewer, but better stores. Quality over quantity. Once again, we see that image is of the utmost importance.
4 Danier Leather
Danier Leather is a Canadian leather goods company. In its 2015 fiscal year, the company lost $20 million after sales fell 14 percent. As of March 2016, it has signed an agreement with GA Retail Canada. Should Danier not find a buyer, GA Retail Canada has agreed to take over its stores and sell its inventory and retail furniture.
The mistake: There are various issues to blame. There was an increase in competition, the Canadian dollar plummeted and the weather dropped. The winters of 2014 and 2015 were extremely cold. Naturally, there was an increase in demand for heavily-lined winter coats, and Danier didn’t have enough inventory. They did have, however, an oversupply of thin, non-insulated jackets. In order to increase sales, huge discounts needed to be given, which decreased profit margins. Danier also placed greater emphasis on serving a younger demographic, which alienated the company’s typically older clientele.
The lesson: Serve your target audience well, and always keep abreast of trends.
Laura is another Canadian clothing store. Based in Montreal, Laura Canada is a family-run, private womenswear company. Competition has gotten fierce in recent years, with fast fashion on the rise.
The mistake: Laura moved away from the styles their regular clientele loved in order to appeal to a younger clientele. Furthermore, president Kalman Fisher made personal loans to the company, including an $11 million financing agreement with Salus Capital Partners, Inc. Salus also lost the $250 million it loaned to RadioShack Corp, as it went bankrupt. Salus wanted to get its money back from Laura by closing down the stores and liquidating all of the inventory. Landlord Cadillac Fairview provided a $10 million loan at 12 percent interest to Laura to help. As a result, Laura pays them $20 million in annual rent.
The lesson: Borrowing money from Paul to pay Sally has its repercussions. Before taking out a loan, look at the plausibility of you being able to pay it back in a reasonable amount of time. Take into consideration the interest, as well.
2 AOL-Time Warner
In 2001, AOL merged with Time Warner in a $165 billion deal that would increase consumer reach. AOL was to benefit from Time Warner’s cable systems, and the latter was to benefit from AOL’s online audience. However, by 2002, the merger had brought about a net loss of $99 billion. Seven years later, the joint company separated. Time Warner Chief Jeff Bawkes even described the merger as “the biggest mistake in corporate history.”
The mistake: Before the merger, neither company spent enough time evaluating organizational compatibility. Growth strategies were also poorly executed. Both companies were incompatible when it came to culture. Employees were said to have resented each other, and the management structure was unstable.
The lesson: Choose the people you work with wisely. No matter how good your idea is, your business could crumble from lack of good management and unmotivated team members. Don’t take things too personally in business. Always keep your mind set on the greater goal.
Pets.com was an online store that sold pet supplies to retail customers. It only lasted two years. The company went public at $11 per share in February 2000. By November of the same year, the price-per-share had fallen to 19 cents.
The mistake: Pets.com did a great job branding itself: running an ad during the 2000 Super Bowl, making appearances on Good Morning America, and even being featured in People Magazine. However, the company didn’t do substantial market research before starting the company. As it turned out, they didn’t have a substantial niche. In its first fiscal year, Pets.com made $619,000 while spending $11.8 million on advertising. They didn’t have a proper business plan and the company lost money on every sale, not even considering the cost of advertising. It was selling merchandise for around one-third of the price paid for the products. In order to appeal to its customer base, it offered discounts and free shipping, making it impossible to turn a profit.
The lesson: Always think about the return on investment. Create a business plan. Have everything clearly written out so you don’t lose money on sales.
Here's to hoping we avoid the aforementioned business mistakes so we can have a profitable 2017!