Welcome to Business Failure 101

In the 1960s, IBM CEO Tom Watson called an executive into his office after his venture lost $10 million. Watson asked the man if he knew why head been called in. The man said he assumed he was being fired. Watson told him, aFired? Hell, I spent $10 million educating you. I just want to be sure you learned the right lessons.a

In Billion-Dollar Lessons, Paul Carroll and Chunka Mui draw on research into more than 750 business failures to reveal the misguided tactics that mire companies again and again. There are thousands of books about successful companies but virtually none about the lessons to be learned from those that crash and burn.

Lesson One: The Cold Hard Facts

Between 1981 and 2006, 423 major publicly held U.S. companies with combined assets totaling $1.5 trillion filed for bankruptcy. Hundreds more took huge write-offs, discontinued major operations, or were acquired under duress. Again and again, companies follow the same wrong-headed strategies that brought down businesses in the past. The sub-prime mortgage crisis that cost companies tens of billions of dollars in 2007 and 2008 echoes the ill-conceived strategies that pushed Green Tree Financial and Conseco into bankruptcy years earlier. Tom Watsonas executiveas $10 million lesson seems cheap by comparison.

Lesson Two: Failure Patterns

Carroll and Mui found that the number one cause of failure was misguided strategyanot sloppy execution, poor leadership, or bad luck. These strategic errors fall into seven categories, including:

*Pursuing nonexistent synergies: Quaker Oatsa purchase of Snapple was supposed to capitalize on distribution synergies but instead led to a $1.7 billion write-off.

*Moving into an aadjacenta market that isnat really adjacent: Avon decided its aculture of caringa qualified it to operate retirement homes. Subsequent write-offs totaled $545 million.

*Buying more problems than efficiencies through misguided consolidation: Despite pioneering the discount department store years before Sam Walton came along, Ames Department Stores flubbed consolidation efforts, landing in bankruptcy twice before eventually liquidating.

Lesson Three: Avoid Making the Same Mistakes

But thereas light at the end of the tunnel: Billion-Dollar Lessons provides proven methods that managers, boards, and even investors can adopt to avoid making the same mistakes. While thereas no way to guarantee success, this book draws on vivid, off-the-beaten-track examples to help you avoid failure by showing you how to thoroughly assess potentially disastrous strategies before they bring your company down.

Required Reading

Think of Billion-Dollar Lessons as the flip side of Good to Great, but just as eye- opening and essential as that business classic. Thereas enormous value in learning from companies that lost millions (if not billions) in pursuit of strategies that led to spectacular flameouts. Everyone makes mistakes, but why make the same mistakes over and over?

"Carroll (Big Blues) and Mui (Unleashing the Killer App) collaborate to perform an autopsy on some of the most spectacular business failures and corporate disasters in recent times, hunting down the fatal strategies responsible. The authors examine more than 750 'inexcusable' corporate collapses, neatly cataloguing them into eight common 'failure patterns': doomed practices, including the 'Illusion of Synergies,' as illustrated by the ruinous merger attempts by Sears and Dean Witter; 'Faulty Financial Engineering,' as conducted by Tyco and Revco; 'Staying the (Misguided) Course Too Long,' a sin committed by Kodak, which missed the boat on digital photography; and 'Consolidation Blues,' as depicted by U.S. Airways, which crashed as a consequence of buying up too many companies too quickly. While there are assuredly lessons in defeat and the authors' detailed analysis and bracing honesty is welcome, readers hoping for a more encouraging or inspirational business book might find Carroll and Mui's avalanche of disastrous failures, avoidable bankruptcies and destruction of shareholder value a depressing — if highly instructive — read. (Sept.)" Publishers Weekly (Copyright Reed Business Information, Inc.)

Carroll and Mui believe there's enormous value in learning from companies' mistakes. The authors have studied the most significant business failures of the last 25 years and have found that the #1 cause of failure is misguided strategy--not lack of leadership of sloppy execution.

How to avoid the mistakes that lead to the majority of business failures.

Most executives shudder at the word afailurea and try to avoid thinking about it. No wonder there are thousands of books about successful companies but virtually none about the lessons to be learned from those that crash and burn.

Paul Carroll and Chunka Mui think thereas enormous value in learning from companies that lost millions (if not billions) in pursuit of strategies that led to spectacular flameouts. Everyone makes mistakes, but why make the same mistakes over and over?

The authors studied the most significant failures of the last twenty-five years: 750 bankruptcies, major writeoffs, and discontinued operations. They found that the #1 cause of failure was misguided strategya not sloppy execution, lack of leadership, or bad luck. These strategies fall into eight categories, including:

a Trying to fix a core business thatas unfixable

a Moving into an aadjacenta market that isnat really Adjacent

a Buying more problems than efficiencies through misguided consolidation

Billion Dollar Lessons offers adevilas advocatea questions that managers, boards, and investors can adopt.