Many years ago I enjoyed reading an article about the stupidest business decisions in history. The article struck a particular chord with me as a young entrepreneur. So much so, that every time I am in a situation where I am about to make a key decision, I think back on that article I read. The business world is full of successes and failures—some bigger than others. In fact, some of them are so big that people remember them forever. We all make mistakes. I myself have made my fair share of bad decisions here at Bidwise. Fortunately we can all draw valuable lessons from one's own missteps, and from that of others, so I thought I'd reflect on that article I read, and add a few of the most recent epic business blunders of the past decade.
What We'll Cover
1. Not Signing The Beatles
As it turns out, The Beatles faced some rejection before they became the biggest band of all time.
The Executives: Mike Smith and Dick Rowe of Decca Records.
The Background Story: It was 1962, and The Beatles were invited to the studio to audition after Smith heard them play at a bar. After an hour-long audition, during which the band played 15 songs, the guys went home to await the studio's decision.
The Decision: It's been said that Dick Rowe told the band's manager that "guitar groups are on the way out" so he rejected them. However, Rowe has always denied this, claiming that he told his assistant, Smith, to decide between The Beatles and the Tremeloes, who had also auditioned that day. No matter who made the decision, it was ultimately a massive mistake.
The Impact: The Beatles went on to sign with EMI which at the time was a small, relatively unknown, record label. The Beatles became the best-selling band of all time with more than 600 million album sales worldwide as of 2014. They made EMI Records a powerhouse in the music industry, and demand for their music was so high at one point, that they ended up hiring Decca Records, the label that had rejected them, to handle some of their music distribution.
2. Not Buying Google for $750,000
A small internet company in the 90s called Excite.com could have turned itself into a giant with a $750,000 purchase of Google in 1999.
The Executives: Excite.com CEO George Bell decided he didn't want to buy Google.
The Background Story: Google founders Larry Page and Sergey Brin offered their company to Excite.com for $1 million. Vinod Khosla, the investor who was backing Excite at the time, got them to lower that asking price to the bargain price of $750,000.
The Decision: No, thanks. George Bell went his own way and didn't agree to buy Google.
The Impact: Google now has a market value of over one trillion dollars (that's trillion, with a "t"—one of only three companies to ever reach that level.) Meanwhile, Excite was sold in 2004 for $500 million, the amount of money that Google now makes in 1 day (or $180 Billion per year)
3. Passing on Netflix
With one decision, Blockbuster could have solidified its status as a movie icon and owned Netflix outright. Instead, the company decided not to buy Netflix when their founders offered it for just $50 million.
The Executive: Blockbuster CEO John Antioco was happy managing a giant enterprise in the movie space with more than 9,000 stores, a $3 billion valuation, and company earnings of more than $800 million per year in late fees alone.
The Background Story: In the old days, when people wanted to watch a movie, they would go to a rental store and rent a DVD or VHS tape. The largest rental chain was Blockbuster. Netflix started as a DVD mailing service, renting DVDs to their customers on the internet and delivering them over the mail. They envisioned streaming early on, but the technology to make it possible wasn't available. In 2000, Netflix co-founder Reed Hastings and Marc Randolph were worried because Netflix was still losing money and took the company to Blockbuster and offered the entire company for sale for the low price of $50 million. Netflix was struggling at the time, and they'd been trying for months to get a meeting with Blockbuster executives. They proposed a joining of forces, pointing out the weaknesses in Blockbuster's approach, and Netflix's vision for the future of entertainment, but Randolph recalls that Antioco was trying not to laugh during their meeting.
The Decision: Antioco didn't even make a counteroffer, believing that online businesses weren't sustainable.
The Impact: That decision was the beginning of the end for Blockbuster. Facing competition from an ever-evolving and improving Netflix as well as companies like Redbox, Blockbuster filed for bankruptcy in 2010 and stores began to close. Meanwhile, Netflix became a movie streaming juggernaut and ultimately an award-winning production company, making $25 billion in revenue in 2020.
4. Not Buying the Patent to the Telephone
The Western Union Telegraph Company passed on the opportunity to buy what may be the most valuable patent of all time.
The Executive: William Orton, the president of Western Union, already had the world's dominant communications company.
The Background Story: Back in the 1800s when people communicated via the telegraph. Alexander Bell came up with the idea for a more efficient way to communicate. The telephone. Western Union was well-established by 1876, with more than 7,000 telegraph offices in the United States and 185,000 miles of telegraph wire stretching between them. It was a logical buyer for Alexander Graham Bell's invention: he offered the telephone patent to Orton for $100,000.
The Decision: Orton is said to have referred to the invention as a "toy" and couldn't understand the need for it, when messages could already be sent clearly via the telegraph office. He couldn't envision people talking to each other over phone lines. He had plenty of business—but no vision for what the future could be like.
The Impact: Bell founded his own company, and within two years, those patents were worth $25 million. Western Union tried to develop its own telephone system and actually accused Bell of stealing their ideas, forcing Bell to sue (and win) for patent violations. By 1879, the company backed away from the telephone business, and Bell became the backbone of the telecommunications industry in the United States, that resulted in giant companies like ATT and Southwestern Bell.
5. Turning Down Product Placement Opportunity in E.T.
M&Ms could have been E.T's favorite candy, but a terrible marketing decision made E.T's producers go with Reese's Pieces.
The Executives: John and Forrest Mars, of Mars Candy (The company that makes M&Ms) were approached about the possibility of their M&Ms candy being featured in the upcoming film E.T., directed by Stephen Spielberg.
The Background Story: In the movie, the boy, Elliot, sprinkles candy on the ground to entice the charming little alien to follow the path. Originally, that candy was supposed to be M&Ms, and the filmmakers asked Mars, Inc. about a mutually beneficial promotion that included using the candy in the film.
The Decision: It's hard to say why, but John and Forrest Mars passed on the opportunity to put the M&Ms in the movie.
The Impact: The producers turned to Reese's Pieces, thanks to their similar shape and size, and Hershey vice president Jack Dowd agreed to a cross-promotional deal worth $1 million. Reese's Pieces sales skyrocketed, and the candy found its way into theater concession stands. The movie put this relatively new candy on the map generating billions of dollars in sales for Reese's parent company.
6. Releasing Floyd Mayweather for $750,000
One of the best boxers of all time is also one of the world's richest athletes—all thanks to a shrewd decision he made just one decade into his professional career.
The Executive: Bob Arum is the founder of Top Rank and the boxing promoter that helped Floyd Mayweather start his professional career.
The Background Story: Mayweather started his relationship with Arum in 1996. For 10 years, Arum promoted the boxer as he became one of the best-known athletes in the sport. In 2006, Mayweather decided he wanted out of his contract with Top Rank. Though he was making about $3 million for every fight, he saw the enormous potential of Pay-Per-View, and he believed he could make much more on his own.
The Decision: Arum let Mayweather go for $750,000.
The Impact: Floyd bought his freedom for $750k and got out of his contract with Bob Arum. Mayweather has made $915 million in the last 10 years under his own company, Mayweather Productions. In his first PPV fight after leaving Top Rank, he made $8 million; his fight with Oscar de la Hoya earned him $25 million. Arum's worst decision was certainly Mayweather's best. Arum still wishes Mayweather well, hoping that his company rises enough to rival Top Rank (which has been around for 50 years and still promotes some of the best boxers in the ring today) to bring more attention and growth to the sport.
7. Selling Instagram for $1 Billion
Most of the mistakes we've discussed so far have been mistakes of omission rather than commission, but this one was a mistake on the part of the seller, not the buyer. The buyer fared very well, indeed.
The Executives: Instagram founders Kevin Systrom and Mike Krieger sold the company to Mark Zuckerberg's Facebook in 2012.
The Background Story: In 2012, Instagram had only 13 employees, 30 million users, and no revenue. Despite all that, Twitter, which was stealing some of facebook's thunder as a social platform, came to instagram's doors and offered them to buy the company for $500 million. Zuckerberg, who already had a good relationship with Kevin Systrom, heard about the news, and invited Systrom to his home in Menlo Park, California. He offered double the amount that twitter offered, namely $1 billion for the 13-people company. Some say Facebook saw Instagram as a threat, but CNBC reported that facebook employees were more worried about Twitter or Google buying it. Twitter founder Jack Dorsey felt so betrayed that Systron had leaked the news to Mark Zuckerberg and sold to Facebook, that he deleted the app and hasn't posted since. At that time, it seemed like a great move by Instagram founders, playing both companies against each other in order to maximize the value of a potential acquisition, but they failed to see why both of these companies were drooling over Instagram in the first place. Zuckerberg was so convinced about this move, that he closed the acquisition over a weekend without approval from his board of directors.
The Decision: The Instagram founders agreed to the $1 billion sale along with the independence to run Instagram as a separate company. At the time, it was Facebook's largest-ever acquisition.
The Impact: It was a smart move for Facebook, but Systrom and Krieger—who left the company in 2018—may have some regrets. Instagram is now arguably the hottest social network on the planet with billions of users. It generated $20 billion in revenue for facebook in 2019, and some analysts estimate it's worth more than $200 billion. Instagram has been instrumental to the growth of facebook helping them reach a historic $1 trillion valuation.
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