Harsh Pamnani is a marketer and author. He obtained his B.E. (Computer Engineering) from IET-DAVV, Indore and MBA from XLRI, Jamshedpur.
Once upon a time, Yahoo used to be the poster boy of internet industry. In the year 2000, this iconic brand’s market cap was $128 billion. But then in 2016, Yahoo’s core operating business was acquired by Verizon for $4.8 billion. Once, Jabong used to be one of the fastest growing e-commerce brands in India. Back in 2014, it was close to getting acquired by Amazon for over $1 billion. But then in 2016, it was instead acquired by Flipkart-owned Myntra for $70 million.
Let me share a few more names with you – Kodak, Videocon, Toys“R”Us, Myspace, Nokia, Kingfisher Airlines, RadioShack, Lehman Brothers, Enron etc. They were all highly respectable brands once in their respective industries. But with time, they lost their position of power and honour.
Hardly anyone could have predicted that such phenomenal brands would move from hyper growth to hyper fall. While all might have seemed rosy to the average customer from the outside, a closer look throws up common traits that could have taken brands from hyper growth to hyper fall. A few of them are as follows:
Personality clashes: Entrepreneurs' ambition is limitless. To grow their baby, they aim to achieve more market share in their existing markets, enter into new businesses and new markets, all at once. To achieve more, they hire multiple people at every level. People have varied characteristics, levels of ambition drive, and/or different working styles. Sometimes team members don’t get along with each other. Personality clashes among people lead to slow decision making, endless indecision and inactivity causing inefficiency in the system.
Management blunders: Sometimes management’s decisions are driven by short term incentives like annual bonuses, promotions, luxurious benefits, self-serving activities, and so on. Due to their vested interest, a few leaders and employees manipulate the company’s fortunes in an effort to improve their personal positions. Additionally, sometimes a few leaders ignore advice from their investors, board, customers, employees and suppliers or take competition lightly. They take short term decisions that affect the brand’s market and financial position in the long run.
Glory of past success: When a company gains market share, gets positive media coverage, industry awards, external funding and so on. It is natural for its leaders and employees to feel that they are doing all the right things and develop resistance to change. Sometimes they forget that things that work in one market or business opportunity or time period would not work in another one. Sometimes, because of complacency, they ignore new window of opportunity that opens up for limited period. Additionally, they ignore reskilling themselves and become vulnerable to competition and mistakes.
Bad publicity: A successful advertising and PR campaign can create high demand for a brand, but bad publicity can create customer disaffection. Bad news can get re-reported and spread rapidly. It could create negative perceptions and demolish the market position of a brand, leading to movement of its customers to alternatives.
Lack of quality control: When demand for their products and services is high, companies come up with optimistic sales projections and scale up their operations rapidly. To meet the demand, they have to make sure that their products and services are adequate, properly supported, and readily available. Sometimes to meet the demand and avoid delays, companies compromise with quality control standards leading to premature product introductions. Sales channels such as dealers receive defective product and later face customer complaints, unsold inventory and returns, causing unhappiness at their end.
Inadequate financial control systems: Financial control systems help in raising invoices, track payments, identifying cost cutting areas, define budget for various departments and so on. Inadequate financial control systems can make business planning very difficult. In absence of these systems, departments could develop their own numbers, staff can forget accounts payable, accounts receivable and programs can get over budget or out of money without alarming signals.
Unbearable economic pressure: If companies are not able to raise funds either through equity or debt route, if their working capital is not managed properly, if they have pressure from investors to increase their profit margins in commoditised and competitive business environment, if they have a lot of unsold inventory and so on, then they would go through unbearable economic pressure. In this kind of scenario, many companies file for bankruptcy or opt for distressed sale of their assets.
Trouble with suppliers: Sometimes, to save money or to do things quickly, cheaper, untested and unreliable organisations are chosen as suppliers. These suppliers go bankrupt halfway through the job or deliver very late or deliver products full of errors. Troubles with suppliers create troubles within the companies. For example, to keep the market excited and fight competition, new products have to be announced. At the same time, new products should not impact existing products by drying up their sales and converting them into unsold inventory. But if due to trouble with suppliers, there is congestion in production of existing products, then whole go-to market plan for new products could get affected.
Enthusiasm and inexperience: After achieving success in one niche, it is natural for companies to have enthusiasm to get into new inexperienced areas. New businesses have new set of challenges, dynamics, competitors and customer expectations. Sometimes these new areas are not very much related with existing niche or are capital intensive with high burn rate. To repeat its success in the new business area, a company has to divert its focus from existing successful business, hire new people and raise external capital leading to increased complexities.
Employee dissatisfaction: Business productivity is defined by human productivity. Indecisive noises about reorganization, overregulation, absence of a cohesiveness, lack of communication from leadership, excessive bureaucracy etc. can destroy employees’ will to succeed. As a consequence, a number of key employees resign, compounding to day-to-day problems.
Andy Grove has said “Success breeds complacency. Complacency breeds failure. Only the paranoid survive.” If an athlete gets info comfort zone after winning, doesn’t practice every day, eats junk food, then sooner or later, he would lose its hard earned position to competitors. Similarly, if a brand achieved hyper growth in the past, but with time, the above mentioned traits have started appearing in the organization, then sooner or later, it could face a hyper fall.
Views expressed are author's personal and don't necessarily represent any company's opinions.