From boom to bust: Learning from famous family business failures
ILLUSTRATION BY RUTH MACAPAGAL
Over 83 percent of our clients are family businesses. Family businesses are often considered the lifeblood of economies worldwide, contributing significantly to gross domestic product and employment. However, they are not immune to failure. Family businesses face unique challenges that can sometimes lead to their downfall.
Family businesses offer unique advantages, such as a strong culture and long-term vision. However, they also face unique challenges that can lead to their downfall if not adequately managed. By learning from the failures of others, family business owners and CEOs can avoid similar pitfalls and build a more resilient and successful company. Understanding these pitfalls is crucial for long-term success for family business owners and CEOs.
This article will delve into some famous family business failures and extract valuable lessons from each.
The collapse of Kodak
What went wrong: The Eastman Kodak Company, founded by George Eastman and his mother, Maria Eastman, was once a household name in photography. For decades, Kodak dominated the film photography market. However, the company made a fatal mistake: it failed to adapt to the digital age. Despite inventing the first digital camera, Kodak chose to sideline this technology to protect its film-based business model. This decision led to a gradual decline, culminating in bankruptcy in 2012.
Lesson: Adapt or perish.
The Kodak story is a cautionary tale about the importance of innovation and adaptability. Family businesses must be willing to evolve with changing market conditions and consumer preferences. Ignoring technological advancements can lead to obsolescence and ultimately, failure.
The decline of Sears
What went wrong: Sears, Roebuck and Co., founded by Richard Sears and Alvah Roebuck, was a family business that became an American retail giant. However, the company’s decline began when it failed to adapt to the rise of e-commerce and discount retailers. Sears continued to invest in large department stores, ignoring the shift toward online shopping. This led to dwindling sales and eventually, bankruptcy in 2018.
Lesson: Keep up with industry trends. Family businesses need to stay abreast of industry trends and be willing to invest in new technologies and business models. Ignoring changes in the retail landscape had cost Sears dearly, serving as a lesson for other family businesses to adapt continually.
The fall of Anheuser-Busch
What went wrong: Anheuser-Busch, the brewer of Budweiser, was a family business for five generations. However, it was sold to InBev in 2008 due to a lack of a succession plan and internal family disputes. The Busch family could not agree on the company’s direction, leading to a weakened position and making it an easy target for acquisition.
Lesson: Have a clear succession plan.
Succession planning is crucial for the longevity of a family business. Without a clear plan, internal disputes can lead to the company’s downfall. A well-thought-out succession plan can help avoid conflicts and ensure a smooth leadership transition.
The demise of Forever 21
What went wrong: Founded by the Chang family, Forever 21 was a fast-fashion empire that expanded globally. However, the company made several mistakes, including rapid expansion without market research and failure to adapt to sustainable fashion trends. These missteps led to its bankruptcy in 2019. The year 2020 saw the sale of Forever 21 to Authentic Brands Group for $81 million. Forever 21 had previously achieved $4 billion in sales.
Lesson: Sustainable growth is key. Family businesses must focus on sustainable growth. Rapid expansion without a solid business plan can lead to financial instability. Understanding market needs and adapting accordingly is crucial for long-term success.
The collapse of Toys “R” Us in the US
What went wrong: Founded by the Lazarus family, Toys “R” Us was once the go-to place for toys. However, the company failed to adapt to online retail and eventually filed for bankruptcy in 2017. Despite the rise of e-commerce giants like Amazon, Toys “R” Us continued to focus on brick-and-mortar stores, neglecting its online presence. Toys “R” Us first had to close all of its locations across the globe due to bankruptcy. But by the end of 2022, the company had teamed up with Macy’s department shops and was functioning in a few select US cities.
Additionally, Toys “R” Us still sells to foreign markets online and you can still find stores named Toys R Us in different regions, including Asia. However, in these cases, they sold the licensing rights to other local retailers that retain the Toys “R” Us brand or operate under branded concessions.
Lesson: Embrace e-commerce. In today’s digital age, having an online presence is not optional. Family businesses must embrace e-commerce to stay competitive. Ignoring this crucial aspect can lead to a loss of market share and ultimately, failure.
Hyatt and the Pritzker family
Hyatt was founded by Jay Pritzker in 1957. A dispute within the family resulted in a settlement in 2005. The legal battle was resolved when the family agreed to break apart their $15-billion empire over a decade. The 11 cousins who were beneficiaries of the trust decided to divide the assets among themselves. This division led to each member pursuing independent ventures. The family’s businesses were sold off or taken public. For instance, a portion of the Hyatt Hotels Corp. went public in 2009.
In retrospect, while the Pritzkers managed to resolve their dispute, the process was painful, drawn out and it tarnished their reputation. It also led to the dismantling of the empire that their patriarch, Jay Pritzker, had built. This is a crucial lesson about the importance of succession planning and conflict resolution strategies in family businesses. Having these frameworks in place is always better to prevent family conflicts from escalating to such levels.
The failure of Blockbuster
What went wrong: Blockbuster, initially a family business, was the go-to place for movie rentals. Despite having the opportunity to buy Netflix early on, Blockbuster chose to stick with its brick-and-mortar model. This decision led to its decline and eventual bankruptcy in 2010.Lesson: Don’t underestimate emerging competitors.
Blockbuster’s failure to recognize the potential of Netflix serves as a lesson not to underestimate emerging competitors. Family businesses should always watch the competitive landscape and be willing to pivot when necessary.
The collapse of Barneys New York
What went wrong: Barneys New York, a luxury department store founded by Barney Pressman, filed for bankruptcy in 2019. The company needed to adapt to the changing retail landscape, including the rise of e-commerce and direct-to-consumer brands.
Lesson: Diversify sales channels.
The downfall of Barneys teaches us the importance of diversifying sales channels. Family businesses should rely on more than one channel and adapt to where the consumers are, including online platforms. INQ
