There’s No Need to Gamble on New Products, Corporate Strategy, or Your Next Big Initiative
By Kathleen Boyse
The first step towards recovery is admitting you’ve got a problem
Sometimes admitting you’ve got a problem is a lot harder than one would think. Take for example, Nick Leeson, the rogue trader who single-handedly took down a 223-year old bank, Barings, in just three years. How did this happen? Well, Nick made a mistake and instead of admitting what went wrong and identifying some key learnings, he covered it up with a fake account dubbed 88888 and went all-in. When the Kobe earthquake hit and sent the Nikkei plummeting, Nick was on the wrong side of the trade and his losses for the day were more than $75 million. Within three years, his losses hit $1.4 billion. You probably know how the rest of the story goes: Nick left a note that said “I’m sorry”, fled to Singapore and Barings was bankrupt.
While Nick is a bit of a rarity, we have seen a few companies over the years behave just like Nick, making big bets that don’t work out and then doubling-down on the them. But there is another path! Businesses have a critical window in which they can take a steely-eyed look at the situation and employ a series of tools to assess the situation or pivot before it’s too late.
There is no need to bet the house
Pets.com launched in August 1998, quickly becoming famous for a massive advertising campaign they launched, including a $1.2 million Super Bowl ad, featuring a sock puppet. The company had its IPO in February 2000 but was liquidated just 268 days later. Pets.com did a great job generating awareness, but clearly there was something missing in their business model, product development and growth strategy. Even the best laid strategic plans are based on multiple assumptions. Some of those assumptions will prove accurate, and many will need to be refined along the way. There is nothing wrong with ongoing evaluation and modifications to the original plan if it is based on rigorous learning. Better to refine your strategy along the way than bet the house (and lose!).
An all too common error from start-ups to Fortune 500’s is the tendency to create products and services in a state of isolation and then task the marketing and sales teams to “go out and find a market”. It’s a completely backwards approach when you actually think about it, but that doesn’t stop major companies from making the same mistake year after year. Sometimes companies get lucky, but the vast majority of successful products are developed after targeting a specific customer group, identifying their tangible needs, and testing and iterating on potential solutions. Of course, it helps if the market is large enough and if potential customers are actually willing to pay for the product.
A little research can turn a product launch into a Big Win
Way before the start of the cold-brew craze, Maxwell House introduced ready-to-drink coffee in a cardboard carton. Great idea, right? Americans love instant-everything so what could possibly go wrong? Well, for starters, General Foods placed the cartons (complete with an image of a mug filled with steaming hot coffee) in the supermarket right next to ice-cold milk, prompting confusion from shoppers. Rather than recognizing an opportunity in cold-brew coffee, Maxewell House “doubled down” by advertising that consumers enjoy the beverage hot. To make matters worse, consumers were unwilling to actually pour the liquid into a mug before heating it up. You can imagine the microwave disaster from heating up a foil-lined carton! If you’ve identified “convenience” as the main selling point for your product, you had better make sure you’ve considered how that attribute affects all aspects of the customer experience. If Maxwell House and General Foods had invested in consumer research prior to rolling the product out, the companies could have had a big win on their hands.
Before you “double-down” on a declining or changing business, invest in a thorough analysis
Back in 2010, shortly after it’s 1.2 billion acquisition of Palm, Hewlett Packard doubled-down on the smart-device operating system, webOS. Since its acquisition of Palm, HP failed to effectively utilize webOS, with the only things HP having to show for its efforts being a couple of unimpressive smartphones and an equally disappointing tablet. In fact, HP killed off its webOS-based TouchPad tablet after just 49 days on the market. The company also pulled the plug on its entire webOS smartphone line, saying none of its webOS products reached the company’s internal sales targets.
If Palm or HP had experimented with different use-cases, implementation strategy, or user experiences, the story may have ended up differently. In this particular case, HP’s investment didn’t take down the firm, but it certainly slowed their growth and took a ton of resources away from other potential opportunity areas.
It takes a lot to successfully take a company in a new direction: creativity, innovation, strategic rigor, a dedicated team, and perhaps most importantly, leadership that is open to change. The good news is that there are a number of tools at our disposal to help companies today avoid some of the mistakes made by others in the past.
While hindsight is nearly always 20/20, I like to think that a little bit of scenario planning, research and experimentation may have helped these companies save millions, if not billions, of dollars. Be mindful of situations that seem to be heading in the wrong direction, and have the courage to take a stand and think about new approaches to tackling your business challenges.