Businesses rack up losses for lots of reasons— reasons not always under their control. The US airlines can’t be faulted for their grounding following the 9/11 attacks, to be sure. But in our recent study of 750 of the most significant US business failures of the past quarter century, we found that nearly half could have been avoided. In most instances, the avoidable fiascos resulted from flawed strategies—not inept execution, which is where most business literature plants the blame.
These flameouts — involving significant investment write-offs, the shuttering of unprofitable lines of business, or bankruptcies — accounted for many hundreds of billions of dollars in losses. Moreover, had the executives in charge taken a look at history, they could have saved themselves and their investors a great deal of trouble. Again and again in our study, seven strategies accounted for failure, and evidence of their inadvisability was there for the asking.
Take adjacency moves. Frequently what appears to be an adjacent market turns out to be a different business altogether. Laidlaw, the largest school-bus operator in North America, bought heavily into the ambulance business in the 1990s, figuring its logistics expertise would carry over to that kind of enterprise. It turned out that operating ambulances isn’t really a transportation business— it’s part of the intricate and highly regulated medical business. Laidlaw struggled with negotiating contracts and collecting payments for its services, before selling off its ambulance units at a considerable loss.
The underlying business moves we discuss here aren’t always bad ideas; they’ve generated a tremendous amount of wealth for some companies. But they are alluring in ways that can tempt executives to disregard danger signals. In this article, we’ll describe the seven risky strategies and offer advice on how to resist their charms.