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Editorial Review Product Description
In the 1960s, IBM CEO Tom Watson called an executive into his office after his venture lost $10 million. The man assumed he was being fired. Watson told him, “Fired? Hell, I spent $10 million educating you. I just want to be sure you learned the right lessons.” 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 over and over. 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 are that between 1981 and 2006, 423 major companies with combined assets totaling $1.5 trillion filed for bankruptcy.
Lesson Two: The number one cause of failure was misguided strategy – not sloppy execution, poor leadership, or bad luck. These strategic errors include pursuing nonexistent synergies; moving into an “adjacent” market that isn’t really adjacent and
buying more problems than efficiencies through misguided consolidation.
Billion Dollar Lessons provides proven methods that managers, boards, and even investors can adopt to avoid making the same mistakes. It draws on vivid examples to help you thoroughly assess potentially disastrous strategies before they bring your company down. Think of Billion Dollar Lessons as the flip side of Good to Great, but just as eye opening and essential as that business classic. Billion Dollar Lessons will keep you from going from good to gone. ... Read more Customer Reviews (39) 
Great Cautionary Tales
If you are thinking about a merger, buyout, consolidation, roll-up or any of the cute names that corporate takeovers go by, read this first.While there are several examples of successful buyouts, this book contains a number examples of disasters.
The stories are well told without being preachy.The research is good, and while I might want more in depth information, for the average corporate exec, the level of detail works.
The part that sets this book apart is that it offers some great coaching questions should you be considering a buyout.
A solid read, and one with a number of takeaways.
Well written, easy to read book
The book is a fantastic read. There are valuable lessons to be learned from business failures and this book delineates precisely what went wrong with some businesses. It is a surprisingly easy to read book with a great amount of research. I'd highly recommend it.
A Very Absorbing Book
The delivery of spectacular failures is the subject of this book. Whereas most management texts deal with success stories and how to be successful, this book relates stories of failures and advises how not to fail while making management decisions. The authors investigated 2500 failures for more than two years to form the basis for this book. They relate these stories in a very readable and absorbing manner, analyze them from various aspects and bring out learnable lessons.
The first lesson learnt is that "it is not enough to just try to be more aware of potential pitfalls. Some outside mechanism needs to be applied as a safeguard to head off bad deals and bad strategies". What can this "outside mechanism" be? Proper Corporate Governance probably.
Another lesson learnt is that "it is awfully hard to kill dangerous ideas when the need for earnings (and bonuses) is very real and short term while the potential problems are ephemeral or long-term". This is often because "once a strategy starts to build momentum it will steamroll any possible objections".
A very valid fact brought out by the authors is that "boards can spot problems, but directors are sometimes reluctant to speak up because they don't have as much information as the CEO and seldom have as much background in the industry". They have also quoted case where directors were "outmaneuvered". Is having more knowledgeable and assertive directors the answer?
The authors suggest that "failures tended to be associated with one of seven types of strategy. Failures could certainly happen for other reasons, but if a company followed one of these seven strategies it was far more likely to flop". These seven strategies are synergy, financial engineering, rollups, staying the course, adjacencies, riding technology and consolidation.
"Part One" of the book is divided into chapters to deal with these seven strategies respectively.
The authors quote a study that found that in 124 mergers only 30 percent generated synergies and even these were "even close to what the acquirer had predicted". The reason that they write for the failures in synergy is "that as companies are becoming more dependent on technology, achieving synergy targets is heavily dependent on the combined entity's ability to integrate their business platform and operate as one", but "the awareness of business platform integration issues is typically missing at all stages of planning".
About "financial engineering" the authors write that "companies get sucked into the idea that they'll indulge in some creative accounting, but only briefly ... but the one or two quarters of aggressive accounting can become ... a way of life - until disaster strikes".
Rollup, as defined by the authors, is the concept that "you can operate more efficiently by taking dozens, or even thousands of small businesses and combining them into one large one". The quote studies that suggest that "more than two-thirds of rollups fail to create any value for investors", but the "problem is not the concept but the execution".
The authors say that executives, like pilots of a crashing aircraft, have warning signs that they are about to crash, but they do it anyway. They relate the interesting story of Kodak in this regard in detail.
Expanding into adjacent markets has been a popular strategy for growth, but the authors find that a majority of such moves fail and that the problem lies mainly in the defining an "adjacent" market.
A very interesting quote from this book is that "marketing is when you lie to your customers, marketing research research is when you lie to yourself". This assertion is supported by the interesting story of Iridium.
The lesson that the authors teach regarding consolidation is that "simply because an industry will consolidate, it does not mean that you should be the buyer" to win. Examples quoted in the book do prove this advice.
The chapter titled "The Devil's Advocate" is very interesting. The authors advise the dissent should be institutionalized to ensure rational decision-making.
This is a very interesting and absorbing book and is recommended to middle and senior levels of management and to directors of companies.
Excellent! Insightful with practical advice
There are many books which talked about business failures. The majority of them focus on blaming personal weaknesses of top management and the inertia to change. This one is outstanding in that it prescribes some systematic means to avoid such failures, and with reference to many great works of its kind. One may not be able to steer itself from the abyss, but it will definitely enjoy a much higher probability of survival if it follows the teachings of this book. In short, a must read!
p.s. Below please find some favorite passages of mine for your reference.
The problem is that acknowledging a threat isnt the same as dealing with it. Discussions within a management team can become an echo chamber, where everyone repeats reassuring comments and ecides that a threat can be managed without too much disruption. pg111
In a cynical mood, we once decided that marketing is when you lie to your customers; market research is when you lie to yourself. pg141
Metcalfe's Law says that the value of a network is proportional to the square of the number of users. That's because the number of conversations enabled by a network of n people is roughly n squared...Reed's Law extends Metcalfe's Law by recognizing that new members increase a network's utility even faster in networks that allow arbitrary group formation...the number of possible groups that can be formed by n people is 2 to the nth power, which increases exponentially - far, far faster than n squared. Reed used his law in 1998 to predict that, of all the Internet startups, eBay would be the one with the greatest staying power...It also explains why group forming networks like MySpace and Facebook have become so popular. pg166-7
So the question is: What do customers really think? If Iridium had been able to answer that question through an Iacocaa-like test drive, Iridium could have saved itself a lot of time and trouble. pg168
Peter Drucker once cautioned against trying too hard to find strong leaders, noting: "The three greatest leaders of the 20th century were Hitler, Stalin and Mao". pg211
The between-expert agreement in a host of fields, including stock picking, livestock judging and clincial psychology is below 50%, meaning that experts are as likely to disagree as to agree. The internal consistency of medical patholgoists' judgement was just 0.5. pg212-3
Nine ways companies can introduce acceptable levels of useful disagreement - at least for a time: 1. Grant license to the devil's advocate 2. Smooth out management ruts 3. Fist, decide how to decide 4. Find history that fits 5. Bet on it 6. Stare into the abyss 7. Construct alarm systems 8. Always have escalation mechanisms 9. Hold second-chance meetings
Big picture thinking
This book is very smart.Frankly, the majority of the book is dedicated to failures.The reason why this book is smart is because few are drawn to stories of failure.This book's readership -- executives, business owners and those thinking about those roles -- would rather hear of success.The sad truth, however, is that wisdom does not reside in snapshot stories of success.My bookshelves contain stories of Enron and WorldCom as exemplars of success.Wisdom is not found there, but rather in the analyses of failures.That outcome is final.And that's part of what the authors are trying to get across -- things change.The stories of companies who did not make it contain lessons of how they overlooked the context where possibilities of change and structural weakness lived.The hopeful part of this book is in the second part where they offer prescriptions on how to overcome the flaws that cause failure. I do think many of their suggestions are spot-on.As a matter of fact, I give them a standing ovation for promoting the use of a devil's advocate, deciding first how to decide and constructing alarm systems. But, some areas of leading an organization are just so hard to pin down.For instance, they reveal that it is a human tendency to rely on stories and myth over more concrete -- and accurate --evidence.Yet, they say to "find history that fits" when evaluating strategy.And later they say "focus on the strategy, not the process that produced it."I suggest that it is very hard for a leader to discern between what is a story that will misguide and what is a story that will inform.Nonetheless, this book is an enjoyable and worthwhile read.
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