Expensive (and Embarrassing) Business Mistakes
Running a business can be a tricky endeavor for anyone. After all, it’s not easy to make the right decisions for business growth and effective competition without ever missing the mark. Not surprisingly, the complexity of some decisions can lead to occasional mistakes, but most missteps can be overcome with minimal damage.
Unfortunately, some mistakes are in a whole different class and result in devastating financial consequences along with a lot of public embarrassment. Let’s take a look at some of the most expensive business blunders in history.
NASA's Martian Miscalculation
NASA is synonymous with space and literal rocket scientists, but an elementary-level mistake in 1999 caused some to wonder about the validity of those impressive degrees. Lockheed Martin designed a Mars orbiter that ended up lost in space. Why? The design used English measurements, and NASA normally used the metric system.
Somehow, Lockheed Martin and every NASA engineer that worked on the project overlooked this critical fact. You would think it would be an easy mistake to catch for a group of geniuses, but perhaps the game show Are You Smarter Than a Fifth Grader? was on to something. The error led to a $125 million loss.
The Tech Company Who Refused to Upgrade
When you consider the many decades that Radio Shack stayed in business, you know they had to undergo many changes and learn to roll with the punches. The company wouldn’t have survived as long as it did without adapting, so it was a mystery when the executives running the show refused to enter the world of online sales.
Although there may never be a clear explanation for the reasoning, the resistance to e-commerce played a huge part in the company's demise. Over time, Radio Shack lost an increasing number of sales to the convenience and competitive pricing of online stores, ultimately leading to bankruptcy.
EA Sports and Illegal Weaponry
EA Sports is well known for numerous American video games. With the introduction of its video game Godfather II, however, it became known for something else. As part of its promotion, the company gave away brass knuckles. "Knuckle dusters" are actually relevant to the game, but there was a big problem with the promo: Brass knuckles happen to be illegal in most of the U.S.
After public criticism, EA Sports immediately stopped the promo. That meant not only eating the cost of the weapons but also dealing with bad publicity. Fortunately, the company did not get sued or fined, but it was a costly mistake.
Fraudulent Bank Account, Anyone?
A few years ago, some Wells Fargo employees noticed something suspicious about some customer accounts. The problem? Some dishonest employees had opened accounts in customers’ names without their knowledge. When the honest employees alerted upper management, nothing was done to investigate or rectify the situation.
Instead, CEO and chairman John Stumpf chose to ignore the allegations completely. It was later revealed the employees were told to carry out these fraudulent practices. Wells Fargo was sued, and Congress ended up in the middle of the investigation. In the end, the bank had to pay a $185 million settlement in addition to repaying customer fees.
No “Excite-ment” for Google
In the 1990s, Google was nowhere near the giant it is today, but its popularity was on the rise. Founders Larry Page and Sergey Brin approached the more popular Excite with an offer to sell for $1 million. The CEO of Excite turned down the offer, prompting Page and Brin to lower the price to only $750,000. Unbelievable, right?
Excite still turned the offer down, something the CEO likely still regrets. What was once a somewhat unknown search engine has since become the most popular way to browse the Web. Google is now worth about $340 billion, with annual sales reaching $60 billion.
Ignoring a Game-Changing Invention
Would it surprise you to learn that digital cameras were actually patented in 1977? That’s right — Kodak invented the first digital camera and filed a patent on it. While the early prototype wouldn’t compare to today's technology, it was definitely a concept ahead of its time. So, what happened to it?
Kodak decided that introducing the camera to the public would reduce its film sales. Film was the money maker for the company, so the digital camera idea was shelved. When other companies began making and selling digital cameras, Kodak was almost too late to the game, which hurt the company financially.
Tearing Up the Future
You probably know some people who are "stuck in their ways." Henry Ford embodied that behavior. After his beautiful Model T was introduced to the public and became popular, he wanted to leave well enough alone, even when others encouraged him to redesign it and make improvements.
One team member designed a prototype of an updated model, and Ford didn’t try to hide his displeasure while ripping the design apart. Of course, other manufacturers were more willing to adapt, and they swiftly knocked Ford out of its number one spot. For years, Ford lagged behind the competition.
Passing on the Best-Selling Band of All Time
It’s hard to imagine someone turning down the Beatles for a record deal, but that’s exactly what Decca Records did. The group performed in front of Decca's A&R executive, Mike Smith, on New Year's Day. Although nerves might have made the performance a little less than awe-inspiring, that had nothing to do with the rejection.
Smith actually believed that guitar groups had run their course. Not only did guitar bands stick around, but the Beatles ultimately became the best-selling group of all time. The band has sold a record 183 million albums to date.
Are You Ready for Some Football?
What would Americans' lives be like without Monday Night Football? It may seem unimaginable, but football-free Mondays were almost a reality. In the 1960s, the NFL approached both CBS and NBC about broadcasting Monday night football games. Both networks refused, clearly not seeing any reason to change their Monday night lineups.
That turned out to be a major mistake for the two network giants — and an incredible opportunity for another. ABC made a deal to air Monday Night Football, and it soon became one of the highest-rated series on TV. Almost 60 years later, families and friends still gather around their TVs on Monday night to watch games.
Tech That’s Too Hot to Handle
Samsung's Galaxy Note is a very popular smartphone, rivaling some of the extremely popular iPhone models. Not surprisingly, consumers want the newest models as soon as they come out, and they expect greatness in return for outrageously high prices. What they never expected was for their new phones to burst into flames.
This fire hazard led to what was dubbed the "worst-ever recall" for the Galaxy Note 7. It appears the product wasn’t quite ready for market and may have not gone through full rounds of testing. The company’s rush to market the phone ended up costing the company $17 billion for the recall.
Banned Laptops and Exploding Batteries
Speaking of heat and fire hazards, Apple recently recalled a line of 15-inch MacBook Pros produced and sold between September 2015 and February 2017. Apparently, the laptops contain batteries that could catch on fire or even explode. The risk was deemed great enough to ban these particular laptops on airplanes.
The battery could overheat, expand and explode, posing multiple dangers and risks to users. In June 2019, Apple voluntarily recalled 460,000 units to replace potentially defective batteries. While the exact cause of the issue is unknown, it was a very costly mistake on Apple's part.
No Movie Roles for M&M's
If you’ve seen E.T., you know that Elliott uses candy to coax E.T. out of hiding. Reese’s Pieces were the alien’s candy of choice, and the popularity of the tasty treat soared due to its use in the film. How shocking would it be to learn the peanut butter candy wasn’t the first choice? Amblin Productions first approached Mars, Inc., to discuss using M&M’s in the movie.
Mars rejected the request, opening the door for Hershey to promote Reese's Pieces instead. Considering the whopping increase in Reese’s Pieces candy sales (65%) after its appearance in the movie, you have to wonder if Mars regretted the decision in millions of ways.
Final Nail in a Blockbuster-Sized Coffin
Remember the days of video rentals? With on-demand television and Netflix available with a few clicks, Blockbuster Video quickly became obsolete a number of years ago. Interestingly, Netflix approached Blockbuster in 2000 with an offer to sell the then-mail-order company for $50 million — Blockbuster declined.
Fast forward 19 years: Blockbuster no longer exists, and Netflix has grown to become a media and entertainment giant. It ditched the mail-order business years ago in favor of becoming America’s favorite digital streaming pastime. Perhaps Blockbuster should have been a little more open-minded about the changing movie rental industry.
The Mega-Merger Mega-Disaster
Combining two industry giants to form one powerhouse company can be a wise move with the right planning and execution. In 2001, AOL — a leading internet giant at the time — and Time Warner agreed to merge in hopes of achieving even greater success. Unfortunately, the exact opposite happened.
The executives learned the hard way that it’s impossible to join two massive enterprises when the cultures and practices of the companies are vastly different. AOL and Time Warner executives refused to cooperate with each other and created a toxic atmosphere of disrespect. The failure of the mega-merger cost a shocking $99 billion.
Taking Advantage of Employees
Some companies seem to forget that employees are on the front lines, interacting with customers far more often than executives. They are also the ones who handle the inner workings of the business each day. If a company wants its employees to care about the business, it must care about its employees.
That’s precisely where Sears went wrong. By operating with no care and consideration for its employees, Sears created a culture where those employees didn’t care about the success of the stores. Customers didn’t receive the treatment they deserved, and the stores often looked disgraceful inside, leading to plummeting sales.
Never Try to Fix What Isn't Broken
While innovation is a good and necessary practice, the phrase "If it ain't broke, don't fix it" exists for a reason. Coca-Cola had thrived producing its delicious original formula for nearly a century. Despite the soda’s unquestionable success, Coke irrationally decided to change the formula in 1985 and introduced a poor replacement: "New Coke."
Unfortunately, this change smacked the company in the face, and Coke quickly lost its competitive edge against Pepsi. The public loved the original formula and wanted it back. Coca-Cola complied and made its way firmly back into customers' hearts in less than three months. Lesson learned: New is not always better.
The Cost of Resisting Change
To succeed, you sometimes have to let others make important changes. This is especially true when it comes to trusting leadership. When the book industry began to change, Borders bookstores decided the way to stay competitive was to hire a new CEO. This idea might have worked, but the board wouldn’t allow the new CEO to make changes that could have saved the business.
Throughout the course of its downward spiral, Borders hired three new CEOs — none of whom were allowed to really change anything. As the industry continued to change, the company continued to lose sales. Eventually, Borders closed its doors, passing along any valuable assets to Barnes & Noble.
Missing a Golden Microsoft Opportunity
About 40 years ago, Bill Gates attempted to sell Microsoft to Electronic Data Systems, but Ross Perot felt the $40 to $60 million price tag was too high. A young Bill Gates was trying to keep the company afloat in tough financial times, and it wouldn’t have been surprising if the company had failed after failing to make the sale.
Obviously, that didn’t happen. Fortunately for Gates and the millions (billions?) of consumers who rely on Microsoft’s products, he chose to stick it out. During the past four decades, Microsoft has provided many excellent products to the masses, and Gates himself has a personal worth of $76 billion.
Rejection of the World’s Greatest Wizard
With the overwhelming popularity of the Harry Potter book series, it’s hard to imagine a publisher ever could have rejected the books. In truth, two prominent London publishing companies — HarperCollins and Penguin — turned down the first book, Harry Potter and the Philosopher's Stone (British title) without giving it much consideration.
Another publisher's 8-year-old daughter read the book and loved it. After some begging, the publisher agreed to publish the book to appease the daughter. Two decades later, multiple books and a blockbuster movie series have spawned successful toy and costume lines to add to its billion-dollar enterprise.
Falling Off a Razr’s Edge
Motorola created its extremely popular Razr cell phone and became the market leader in 2006. The public loved the phone, and Motorola continued to expand and improve the model. It’s important for companies to continue working toward the next big thing, even when a product is successful, but Motorola apparently didn’t get that memo.
When iPhone and BlackBerry devices were introduced to the public, Motorola quickly lost its competitive edge. It took less than six months for the company's shares to fall more than 90 percent. Motorola has re-entered the market with new phone designs in recent years, but it’s still a much less popular option.
Allergy Sufferers — Beware!
Most people don't expect prices to stay the same, of course, but they don’t expect prices to abruptly increase by 10 times the original amount. Pharmaceutical prices have steadily risen over the years to ridiculous levels, causing less-than-favorable criticism and outlooks for pharmaceutical companies.
Possibly the worst mistake was made by EpiPen manufacturer Mylan Pharmaceuticals. Those with life-threatening allergies depend on EpiPens and keep them on hand for emergencies. In 2007, the drug had a $57 price tag and was already too expensive for some. In 2016, the price increased to $500. The public expressed their displeasure with a 34% drop in Mylan's stock price.
Show Me the Money!
Remember when Vine was a fun way to create and share short video content? In the beginning, it was a very unique platform with unique content, and content creators utilized its capabilities nonstop. However, that all changed once Instagram made it possible to post short videos.
What did Instagram have that Vine didn't? Monetization opportunities for its creators, who could generate income from both Instagram and YouTube if they created popular videos. Vine didn’t offer any monetization. In fact, Vine offered no incentives at all beyond humor. Content creators inevitably chose to follow the money.
The Importance of the Right Business Plan
Zellers, a Canada clothing store chain, was once a booming business that offered low prices on thousands of items for the family. Maybe it would have remained on top if Walmart hadn’t crossed the border into Canada. Walmart is called the "low price leader" for a reason, and the company quickly began to steal Zellers' customers.
The smart thing probably would have been to study Walmart's business model to find ways to compete. Instead, Zellers decided the answer to its woes was to buy up all the retail locations it could. Zellers lost big to Walmart and has since shut down.
A Careless Patent Oversight
In 1858, Edwin Drake took a hard look at an oil spring in Pennsylvania. After encountering some obstruction, he pondered ideas for how to reach the oil without contaminating it. This led to his innovative pipe-and-drill invention.
Sadly, Drake didn’t patent the invention, and when others noticed what he was doing, they began to follow his method. His system ended up making others a lot of money, but Drake didn’t benefit equally from their success. Because others were already using his method and he had not filed any documentation to prove the idea was his, he lost out on what would have amounted to millions.
Turning Down a (Former) Television Icon
In 1984, Bill Cosby pitched The Cosby Show to ABC, and they promptly turned him down. At the time, the network assumed that a television show about a wealthy, educated black family wouldn’t hold any appeal, so they passed on the deal.
That didn’t keep the show from becoming a success, of course. Cosby took it to NBC, who saw the value and quickly purchased the rights to produce it. The Cosby Show was the top NBC show for four years and was once the most profitable show on television. Too bad no one will ever air it again, thanks to the criminal disgrace of Cosby.
An Expensive Price Misprint
The importance of proofreading your work before submitting it is a common lesson that begins in elementary school. In 2006, Alitalia Airlines’ executives found out they should have paid attention in class. Thanks to a simple mistake, the airline sold 2,000 tickets for $39 instead of the real price of $3,900.
Unfortunately, the company didn’t catch the pricing mistake before tickets were sold, and they had to honor the tickets to prevent problems with lawsuits and outraged customers, who could have destroyed their reputation. The misprint ended up costing Alitalia Airlines $7.72 million, quite a loss for any company.
The Psychology of Pricing
In the retail world, there’s a psychology to effective pricing. Certain aspects of a sales tag trigger particular feelings in consumers. For instance, charging $3.99 for an item instead of $4.00 intrigues customers more. Also, customers love to catch things on sale. It makes them feel like they are getting a great deal.
Consumers also like to tell their friends about the sales they find. In 2012, JCPenney's CEO decided to change to the whole pricing strategy to make everyday prices lower like previous sale prices. Revenue immediately dropped, and the company has struggled to regain its footing.
Copying from a Copy Master
In today's world, it seems like every digital product imaginable is brought to market. In the past, new inventions didn’t appear as often. In some cases, inventions were set aside and not introduced to the market for various reasons. In the ‘70s, Xerox had quite a few digital products just laying around the office.
Apple offered Xerox $1 million worth of stock to allow some Apple employees, including Steve Jobs, to visit Xerox for a few days. Xerox agreed, which was a big mistake. The Apple employees learned about Xerox's tech and used that information to create Apple's invaluable PC.
Epic Failure in Management
When companies are left to fend for themselves, they could find themselves constantly pouring money into ideas that ultimately fail. Internet giant Yahoo was once worth $125 billion, but it fell from grace rather quickly. Was it due to pressure from competition or the poor choices of upper management? Regardless, the company stopped producing quality content.
Instead of capitalizing on successful projects, the company kept investing in one thing after another that didn’t work out. Without taking the time to consider what went wrong, Yahoo immediately jumped into the next thing. The result? It eventually sold for less than 5% of its previous worth.
Never Get Too Complacent
Remember MySpace? What was once considered "the" social networking site is now basically nonexistent. Although it paved the way for other social networks, MySpace was far too complacent about its position at the top of the industry. It wasn’t long before Facebook eradicated MySpace's popularity — without much effort.
Facebook started as nothing more than a way for college students to link up, but it soon became a platform for businesses to advertise to an extremely large customer base. MySpace offered no such opportunity. Facebook also provided an app, something MySpace never even considered. Secure in its success, MySpace failed to consider the user experience.