Failure™ Magazine

Going Out of Business Tales

Learning from inexcusable business failures.

Written by Jason Zasky   Filed under Business

In the course of your research did you find one particular cause of failure that was more common than any other?
When companies are making an acquisition or considering a move into a new market, they tend to focus too much on benefits and not enough on the potential failures. This often shows up in companies overestimating the benefits of scale and underestimating complexity.

A year-and-a-half ago Oshkosh Corporation, which makes heavy-duty trucks, decided it was going to buy a company that made lifters [for lifting construction materials]. Their rationale was they were going to get increased economies of scale because they were going to buy a lot more steel. On the face of it, it was kind of silly because at the time they bought a quarter of one percent of the world’s steel production. Going to one-half of one percent wasn’t going to impress anybody. And in the meantime, we said [on our blog] this is very different equipment; the sales forces won’t mesh well and the manufacturing processes won’t mesh either.

As it turns out, Oshkosh bought this company for $3 billion in cash and even before the market fell apart this summer the combined companies were worth a billion dollars. So the idea is that companies focus so much on benefits that they ignore the problems.

In light of recent economic developments, do you think you might want to change the title to “Trillion Dollar Lessons”?
[Laughs]. It’s funny you say that because we have said that. Time magazine, in a review, said we should be working on a sequel.

In the course of your research, did anything surprise you?
Probably the biggest surprise was how many failures could have been prevented. When I was at The Wall Street Journal we used to say, “There are no new stories, just new reporters.” In some ways, it seems like there are no new failures, just new companies and executives that make the same old mistakes.
 

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