Learning from Catastrophe, or Dying from it: The Value of the Business Failure Case Study

We frequently talk about how innovation is a crucial necessity for your enterprise company, and how the right innovation can be the difference between setting the market standards and being shunted aside as a new market leader makes the rules. We also frequently hear about the great innovation successes: Tesla, SpaceX, Uber, Amazon, and even the classic innovation failures, like Kodak and Nokia, who saw incoming disruptive innovation but didn’t do anything to face it. But what of some of the less familiar examples, of companies which tried to innovate, but put their eggs in the wrong basket? A business failure case study can provide a valuable lesson for enterprises looking to avoid the pitfalls that come with innovation. 

Toys Were Us

Two weeks ago, Toys R Us declared that it was shutting down and would be closing or selling their 800+ stores across the US. This can be traced back to a decision made almost two decades ago. The 1999 holiday season was a particularly good one for Toys R Us. Swamped with online orders, they fell behind on shipping and couldn’t get Christmas gifts to paying customers who had purchased their products weeks, sometimes over a month in advance. This resulted in two things: a $350,000 fine from the US Federal Trade Commission (FTC), and several months later, a 10-year partnership for Toys R Us to sell toys online with Amazon.Business Failure Case Study - Toys R Us

Toys R Us would stock and sell a large selection of its most popular toys on Amazon in exchange for being Amazons only seller of toys and baby products. They also agreed that ToysRUs.com would redirect back to Amazon, in essence giving up on their entire web presence. This dubious deal cost Toys R Us $50 million a year plus a percentage of its sales from Amazon.

By the spring of 2003, Amazon was allowing other merchants to sell toys and baby goods, and though Toys R Us won in court, throwing out their deal with Amazon and winning $51 million, the damage was done, and Toys R Us was never able to recover those lost years without a website of their own. It wasn’t even a year ago that Toys R Us was talking about revamping their website, changing the checkout process from five steps to just two. Clearly, they were far behind the digital times. One bad decision almost 20 years ago was the beginning of the end.

The Hazards of Ignoring the Internet

Sears was another company which ended up paying the price for one crucial mistake made decades ago. At one point, the Sears HQ building in Chicago was the tallest building in the world, holding the title for 25 years, and the tallest building in the western hemisphere for 41 years. The Bundled Tube Structure pioneered in the building of Sears Tower is now used in nearly every building over 40 stories high around the globe. With their famed Sears catalog, Sears was Amazon before Amazon came along.

Business Failure Case Study - Diagram
Failure in innovation is expected, and is a good thing, provided you learn from your mistakes. Credit: Wharton University of Pennsylvania

But then, in 1993, citing low sales, Sears killed off the catalog, doubling down on brick-and-mortar stores. Instead of embracing the new internet and simply uploading their catalog online, Sears took a brand which existed since 1886 and slowly but surely buried it into the ground. Today, if you ask most people in the US or Canada what stores they buy from, Sears isn’t even on the list.

Don’t Tell Me the Real Price

Joining Toys R Us and Sears is JCPenney, which made a crucial mistake half a decade ago, one that was the first snowball in the avalanche that was their eventual death as a household brand. On February 1, 2012, JCPenney launched a new pricing method. “Every Day Low Prices” replaced the former sale prices. The first and third Fridays of each month, tied to paydays, had special sale prices, and each month items relevant to that month would be offered at a discount. In essence, though, sales at JCPenney were over.

Results were soon to follow, and the second quarter showed same store sales down 22%, and internet sales dropping 33%. In 2013 JCPenney were removed from the S&P 500 Index, long considered one of the best representatives of the US stock market. As 2017 ended, JCPenney’s BBB Customer Reviews rating was 1.08 of 5, and their BBB rating was a solid F.

Resting on Your Laurels

Borders Books did the same thing Toys R Us did in the early days of the internet, relying on Amazon to distribute their books and music instead of building their own web presence. By 2011, Borders had gone bankrupt. The big winner here was Barnes & Noble, who just saw their largest competitor go out of business. Barnes & Noble even saw the incoming threat from Amazon, and decided to give fight, by adding coffee shops to their book stores to draw people in, and by releasing their own e-book reader, the Nook, to go up against the Amazon Kindle. But then, they just stopped.

Barnes & Noble could have leveraged their clout to firmly rally authors and publishers to their side but instead chose to do nothing. Barnes & Noble’s YouTube channel has a mere 3,300 subscribers. Their podcast was launched in August of 2017, a little over half a year ago. Recently Barnes & Noble fired 6,000 employees to save $40 million in expenses. The icing on the cake? Amazon has now begun opening physical bookstores to compete with Barnes & Noble on their own turf.

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The Difference Between Failing and Failing

All of these examples have one thing in common: largely successful brands have either disappeared or grown obsolete thanks to one mistake they made years ago, whether by choosing to do something, or by choosing to do nothing at all.

Business Failure Case Study - Postit
Drawing success from the jaws of failure: 3M created the glue for post-it notes by mistake, and only began selling the notes years later, when they saw how successful it was among employees

Innovation experts agree, and we’ve also discussed this topic several times on our own Q-Review, that failure is a key, crucial part of innovation. Companies that don’t fail won’t succeed. So why are we giving these companies a hard time?

The answer lies in the fact that companies, especially massive enterprises like the ones discussed above, can’t just go and experiment willy-nilly, throwing things against the wall to see what will stick. Experimentation, and the resulting failure, need to be part of a carefully regimented system, so as to learn what works and what doesn’t. The key element in failing at something is learning from your mistakes. That is the difference between failing and Failing…

How to Fail the Right Way

Kodak invented one of the first digital cameras but hid it away out of fear for the damage it would cause their film division. The rest, as well as Kodak, is history. But what if the idea was shown to be popular among customers and the decision wasn’t just determined by top executives? Kodak could have taken Canon’s place as the world leader in digital cameras, scaling down their film division as the digital camera division grew.

Barnes & Noble employees and customers could have made suggestions to take advantage of new technology, fighting off their greatest threat, Amazon. If JCPenney had engaged their customers beforehand, asking them about the new pricing scheme, they might have learned that people care less about the price, they want to feel that they are taking advantage of a sale. If Toys R Us was listening to their customers, they’d know about the checkout issues a decade ago instead of 4 months before filing for Chapter 11 bankruptcy.

In each of these cases, the mistake made was compounded by not getting input from external stakeholders on the steps being taken, and not learning from the mistakes made. Implementing an open innovation process, such as Qmarkets’ Q-open, and embedding it as a part of your internal innovation processes, could mean the difference between learning from your mistake, or being buried by it. The best way to ensure that you are able to learn from your mistakes, or even better, avoid making such critical mistakes in the first place, is by making sure you have the tools in place to listen to those who are affected by your decisions.

To discover how Qmarkets can help you hone your innovation strategy to target your business objectives, organize a free demo with us today!

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