“Blame Piles Up in Tribune Cos. 2007 Buyout” is the Chicago Tribune headline. After months of research the bankruptcy judge has released a court ordered report on the transaction that left Tribune Corporation insolvent. Apparently, lots of people were aware that ad demand was falling like a stone. And that there was little hope it would recover. But selling executives shopped for a valuation company until they found one willing to say that management’s projections were plausible. Of course, they weren’t. The transition from print to digital was well along, and the projections were never going to happen.
What’s more startling is the hubris of Sam Zell to close the deal. Apparently he too had doubts about the forecasts, but he went ahead and borrowed all that money to close. That he would ignore all the market signals, and plenty of opportunities to obtain outsider input on the likely continued demise of newspaper ads, shows he wanted to close. He wanted to control Tribune Corporation. Even if it would cost him $300m.
Success Formulas are very powerful. And successful entrepreneurs often have them so locked-in that there’s no other consideration. Success, and personal fortunes, causes them to ignore external data, and external opinions, when they fly in the face of their historical Success Formula. They want to apply it to a new business, and they are ready to go! So damn the torpedos! Full speed ahead!
It’s too bad that our hero worship of successful entrepreneurs too often leaves them insufficiently challenged. Unfortunately, a lot of people got hurt in the calamity that is now the Tribune Corporation bankruptcy. Employees have lost pay, benefits and jobs. Chicagoans have seen the paper get even smaller, and the amount of local news coverage decline. And the city’s reputation has certainly not benefited.
As much as people despise consultants, it would seem that Mr. Zell would have been a lot smarter to ask some bright strategists what the future was for the newspaper before abetting the close of such an onerous, and destructive, transaction. Outsiders, including consultants, are valuable at pointing out the range of potential outcomes – not just the one that fits your Success Formula. That’s why successful organizations use outsiders to help develop scenarios and study competitors, as well as design Disruptions and establish White Space projects. Outsiders can help overcome Lock-in to historical assumptions, biases, prejudice and viewpoints in order to reduce failures and improve success.
And this is some advice hopefully Leonard Riggio will heed. “Barnes & Noble Considering Sale of Company; Possible Buyers Include Founder Leonard Riggio” is the Chicago Tribune headline. Barnes & Noble as an acquisition looks a lot like Tribune did 3 years ago. Product sales (printed books) are in a free-fall as people choose alternative products – especially digital books and journals. Books themselves are struggling to avoid obsolescence as digital publishing makes shorter format more valuable in many instances. Brick and mortar shops focused on printed material – from bookstores to magazine/news stands – have been failing for 10 years – and in fact overall brick and mortar retail across the board has declined the last 4 years as internet retailing has grown. The leading competitor (Amazon) has led the transition to digital, and is competing with an enormously successful tech company (Apple) for the future of digital publishing. Barnes & Noble may have a fledgling product, but it’s about as competitive as a junior leaguer compared to someone on the Yankees!
The Success Formula of Barnes & Noble, as created by the original founder, is obsolete. And B&N is not in the game for where the marketplace is headed. Just because he knew the business once, years ago, gives the founder no leg-up on resurrecting the company. Contrarily, his background is a decided negative as he’s likely to attempt a “throwback” strategy. Since the world goes forward, never backward, those simply don’t work. We could expect lots of store closings, layoffs and inventory reductions – but the future of publishing has radically changed and will continue doing so, and B&N has little input on that outcome. Amazon, Apple and Google (the largest purveyor of digital words through its search engine) are the giants in this game and B&N will get crushed.
And the city of Milwaukee should consider hiring some consultants, as should Harley Davidson. “In Quest for Lower Cost Harley-Davidson Considers Leaving Milwaukee after 107 years” reports Chicago Tribune. Harley would like subsidies, from its workers (unions) as well as the city and state, to keep from moving its factories. But Harley’s problems are far worse than hourly wages for plant workers, and everyone needs to be careful not to get sucked into a Tribune Corp. deal of trying to save a floundering ship.
Harley Davidson’s product has been largely unchanged for a very long time. Despite all the hoopla about tattooed customers, for 30 years competitors Honda, Suzuki, Kawasaki and Yamaha have been innovating and running circles around Harley. Their businesses have grown. Not only by dramatically expanding their motorcycle products, but adding ATVs, snowmobiles, boat engines, automobiles, electric generators, yard equipment and a raft of other products (Honda even makes a commercial airplane!) They have brought in millions of new customers, while Harley’s customer base is eroding – largely dying off as the average age of buyers has risen to well over 50!!
While competitors have pushed forward with new technology and products, and developed new markets and customers, Harley has tried standing still. So, its now an historical anachronism. Interesting to look at, and with some intriguing niches, but not really important to the industry. Should Harley disappear nobody in the motorcycle business will really notice, because almost every competitor now has a Harley-inspired v-twin motorcycle they can sell. Few people realize that most dealers make more money selling jackets and other Harley-Licensed gear/apparel than motorcycles! Harley’s days have been numbered since they let the v-Rod, a motorcycle with a Porsche engine, languish in dealer showrooms – allowing their “customers” to keep them locked-in to aging technology at ever rising prices (they typical Harley prices for over 2x the price of a comparable Japanese produced motorcycle.) Harley should have paid more attention to competitors a long time ago (instead of deriding them as “rice burners”) and a lot less attention to those very loyal – but diminishing in numbers – dealers and end-use customers.
All 3 of these companies, Tribune, Barnes & Noble and Harley-Davidson have great pasts. But the risk is thinking that means anything about the future. Tribune was fatally harmed by adding debt to a company that needed to refocus on new internet markets, then continuing to try to keep the old Success Formula operating. Barnes & Noble is the last prominent brick and mortar book retailer, but there is little reason to think there will be a need for them in just 5 years. And Harley-Davidson every year appeals to a smaller group of buyers in a niche market with aged technology and a tiring brand. In all cases, caveat emptor! (Let the buyer beware!) Before accepting any management forecasts, it would be a good idea to get some external opinions!