Failures #1: 18 Colossal Failures

INTRODUCTION

On April 16, 2016, USA Today had an article entitled “The 18 worst product flops of all time.” It was based on a study conducted by 24/7Wall St. to determine which were the most colossal new product failures since 1950. The 18 flops, and my interpretation of primary causes of the flop, are as follows:

1. Edsel by Ford Motor Co.

Key Mistakes:

·   Insufficient New Benefits

·   Too Expensive

2. Touch of Yogurt Shampoo by Bristol-Myers Squibb

Key Mistakes:

·   Confused Customers

·   Eaten by Mistake

3. Apple Lisa by Apple

Key Mistakes:

·   Too Expensive

4. New Coke by Coca-Cola

Key Mistakes:

·   Misunderstood its Brand

·   Trying to Win by Imitation

5. Premier smokeless cigarettes by RJ Reynolds

Key Mistakes:

·   Innovated Too Soon

·   Questionable Benefits

6. Maxwell House Brewed Coffee by Philip Morris Companies

Key Mistakes:

·   Confused Customers

·   Innovated Too Soon

7. Harley Davidson perfume by Harley Davidson Motor Co.

Key Mistakes:

·   Brand Extension Too Far

8. Coors Rocky Mountain Sparkling Water by Adolph Coors Co.

Key Mistakes:

·   Branding Issues

9. Crystal Pepsi by Pepsico

Key Mistakes:

·   Insufficient Benefits

·   Novelty/Fad

10. The Newton MessagePad by Apple

Key Mistakes:

·   Innovated Too Soon

11. Persil Power by Unilever

Key Mistakes:

·   Defective

12. Arch Deluxe by McDonald’s

Key Mistakes:

·   Insufficient Benefits

13. Breakfast Mates by the Kellogg Co.

Key Mistakes:

·   Insufficient Benefits

14. WOW! Chips by Pepsico

Key Mistakes:

·   Defective Product

15. Hot Wheels and Barbie computers by Mattel

Key Mistakes:

·   Defective Product

16. EZ Squirt (colored) Ketchup by Heinz

Key Mistakes:

·   Defective Product

·   Novelty/Fad

17. TouchPad by HP

Key Mistakes:

·   Innovated Too Soon

18. Google Glass by Google

Key Mistakes:

·   Pros overwhelmed by Cons

Over the next few blogs, we will look at some of the lessons to be learned from these failures, so that you can avoid them.

LESSONS LEARNED

Lesson #1: Innovation is Not a Panacea

These 18 innovation flops were huge, causing losses in the millions of dollars. Yes, they may have been outlyers, since most flops are less colossal. But that doesn’t mean that flops are rare. The article claimed that about 40% of new product introductions are flops.

I believe that the 40% failure number underestimates the problem. A lot of what is considered a “new product” isn’t really much of an innovation. It can be just a minor brand extension, like adding a new flavor or size. It is a low risk/low reward bet on a minor tweak. It is not a truly innovative new product.

If you only look at truly innovative new products, the failure rate is much higher—over half.

I know a lot of companies have a strategy based on some variation of “winning via innovation.” The idea is that future success will come from merely introducing new products. The problem is that if over half of innovations fail (and some fail spectacularly), innovation is not automatically going to lead to success.

Just because you innovate doesn’t mean you’ll win. If fact, the odds point in the other direction.

Innovation is more like a tool than a strategy.

Tools are great, but only if used to achieve a viable strategic purpose. For example, cost control is a great tool but not a strategy. It is meaningless to have the lowest cost of production if you are producing something nobody wants. The strategy must first tell you what is desired. Then, cost control can be chosen as a tool to help make it a reality.

Similarly, it is useless to innovate if you are creating innovations which will flop. Just because something is new does not mean it is the right thing to produce. Innovation only succeeds if you are using it as a tool to implement a greater strategy—a strategy which takes into account all the greater issues like image, branding, positioning, switching costs, consumer trends & habits, etc.

The strategy is the vision of what will win. Innovation and cost control are just some of the many tools you can use to achieve the vision.

Make sure your strategy embraces desirable outcomes rather than just embracing a particular business tool, like innovation.

Lesson #2: Don’t Mess With The Mouth

A friend of mine in consumer research used to say that consumers are particularly sensitive regarding anything that goes in the mouth. They may be forgiving of shortfalls and miscues in other areas, but they expect something a lot closer to perfection when it comes to things put in the mouth. Mess up on things put in the mouth and you will pay a heavy price.

This makes sense, since:

• Health issues are at greater stake;
• Image Issues are at greater stake (You really are what you eat, including the brand image of what’s eaten).

This seems to be verified by the results. If you look at the list of 18 flops, half of them (nine) are items put in the mouth. If you count the fact that people were mistakenly eating the Yogurt Shampoo, it becomes 10 items.

The lesson here is that if you are innovating around items that go in the mouth, be especially careful. People take these more seriously.

Lesson #3: Innovations Need to Work

Some innovations fail because the new product was defective. WOW! chips caused “abdominal cramping and loose stools,” not something desired in a snack food. Persil Power laundry detergent destroyed clothes at high temperatures. The Hot Wheels and Barbie names were put on computers which didn’t work. It’s no wonder why these innovations failed.

You may start with a great idea. But, if the actual product does not deliver on that idea, then the idea is irrelevant. Make sure the product delivers on the promises.

SUMMARY

Innovation is not a panacea for success. On the contrary, random innovation is probably more likely to fail. To minimize failure, innovation needs to be seen as a tool to create a larger strategy. In addition, the innovation needs to live up to the requirements of the strategy and not be defective. Finally, one needs to be extra careful when innovating around products which go in the mouth.

FINAL THOUGHTS

This is just the beginning. Two more blogs on innovation are to follow.

Strategic Planning Analogy #270: Tool Time

THE STORY
A man walks into a home improvement store to purchase a ladder. He goes up to the salesman and asks for a recommendation on which ladder to buy.

The salesman replies, “That depends on what you plan on using the ladder for. We have tall ones, short ones, durable ones, inexpensive ones, and flexible ones. Tell me how you plan on using the ladder and I’ll recommend the right one.”

The man says, “I don’t know how it will be used. Heck, just get me a blue ladder. I like the color blue.”

THE ANALOGY
It’s hard to buy the right tool when you do not have a clue as to how it will be used. The same is true with financial models. You can design all sorts of different computer models for your strategic scenarios—simple ones, complex ones, flexible ones, and so on. Like the ladders in the story, each type of model has its place—and each type can be inappropriate under certain circumstances.

Models are like ladders; they are both tools to get a job done. The better you understand the job, the better choice of tool you will make. Choosing a ladder because you like its color makes as much sense as choosing a modeling technique because it is your favorite. Instead, get the tool based on the job to be done.

THE PRINCIPLE
The principle here is that the best type of model is the one that best answers the question at hand. Simple models have their place. They are quick and easy to build and easy to understand. However, they may not be adaptable to a wide variety of scenarios and they may not be sophisticated enough to provide a meaningful answer.

By contrast, a sophisticated and complex model can allow you to understand a situation more deeply. They can also be adaptable to more alternatives. Unfortunately, they can also be a time-consuming nightmare to build, debug, and input data. In addition, you may not have enough information to know how all the pieces in the model should interact.

Remember, a computer model is just a tool, not the end result. The end result is a strategic decision. Depending on what that decision is, different models may be more or less appropriate.

Keeping that in mind, here are my rules for designing models.

1) Start With the End
The first thing you need to do is ask what decision will be made based on the modeling. Knowing that (the end) will let you know where to start. I’ve seen cases where someone rushes off to build a model before fully understanding how the model will be used. They come back with something inappropriate. That is a waste of time for the modeler and the ones for whom the model was made.

If you are trying to decide between two different ways to operate your business (quality vs. low price; in-house vs. outsourced; mass vs. niche; automated vs. flexible; etc.) perhaps the best model is just a single look at each option in its mature state. There would be more complexity around the factors that are different in the scenarios and less complexity in the areas where they are the same.

If you are trying to decide whether to do an acquisition, then you probably want a model which spans several years—long enough to capture the value of the deal. You need enough detail to compute cash flow. Since a lot of the value of an acquisition is gained or lost during the transition process, you would want to model that as well.

If you are trying to choose between short-term tactics (like a pricing plan or an advertising plan), the model can probably be simplified to only looking at the areas of the business impacted by the tactic.

If you are in a crisis mode where a decision has to be made immediately, stick to the key issues and crank something out quickly.

2) Never Asssume You Will Get it Right In One Take
I worked with a guy who had an interesting take on model building. Once he got all the formulas right, he would run the model once and then freeze the results. In other words, he would erase all the formulas and links from the model and replace them with the actual numbers which came out of the first running of the model.

Then, he would present his results. Invariably, someone would want to adjust some of the assumptions in the model or try another scenario. This guy would then throw a fit because he had erased all of the formulas. He couldn’t run the model again because he had frozen each cell in the spreadsheet with the number from the prior scenario.

This is an extreme case, but the principle applies broadly. Assume that there will be future adjustments to the model. Build it with enough flexibility so that it can be adapted to the future changes.

3) The Questions You Ask Are More Important than the Model You Build
Models are built to provide more clarity around a business decision. Fuzzy notions are hard to quantify and even harder to properly evaluate. In the process of building a model, one has an opportunity to help your audience become less fuzzy by asking a lot of questions.

A computer spreadsheet model has a lot of cells which need to be filled. By working with your audience and asking the right questions, you can force them to become clearer about how each of those cells inter-relate. They may not have thought it all through. By asking the right questions, you can make them think about things that need to be thought through in order to fill in all the cells.

The value of getting them to think these things through may be a lot more valuable than the actual number which comes out of the model. For example, they may be looking at changing the price of a particular product/service. To make sure they fully understand the ramifications of the price change, you can ask questions like:

- How would that price change impact the price perception (and cannibalization) on the rest of the product portfolio?
- How will it impact your quality image?
- What happens if competition matches your price?
- How much price elasticity is there in the marketplace?
- If a lower price raises demand, what items are fixed and what items are variable in meeting that demand?

Just by asking those penetrating questions, you can create better decision-making, regardless of the model. I remember someone from McDonalds telling me about their test of a new product called McShrimp Cocktail. The original model looked pretty good until someone asked the question, “How much shrimp would it take to roll this thing out chain-wide?” Once it was determined that 100% of the known shrimp in the world would not be enough to cover annual sales projections, the project was scrapped. Simple questions can be very powerful. Use the tool of the model as an excuse to get in front of people to ask these questions.

4) Once You Have Enough Information to Make the Right Decision, Stop
The goal here is not the perfect model, but the right decision. Sometimes the choice is so obvious that it doesn’t take much of a model to show it. The gap between option A and option B at times can be so large that you don’t need to waste a lot of time fine-tuning the model. If no amount of fine-tuning could ever make option B better than A, then stop the fine tuning.

As you build and refine the model and the assumptions, continually ask yourself this question, “What is the likelihood that further refinement would lead me to a different conclusion?” At the point where you see little to no chance that further refinement would change your decision, then make the decision now and stop wasting time refining the model.

Sometimes the difference between option A and option B can be very slight. In those cases, it can be well worth the time to further refine your modeling in order to better understand which is the right decision. Focus on the key areas which are the least certain and the most influential.

SUMMARY
Financial modeling is just a tool. Its value comes from its ability to help you make better decisions. Depending on the decision, you made need a different model. So start by understanding exactly what that decision needs to be. Then bring clarity around that decision by asking the right questions. Finally, once you have enough clarity, stop fine-tuning the model.

FINAL THOUGHTS
Some strategic implications of a decision are hard to quantify, like the impact on corporate culture or the value of strategic flexibility. Just because they are hard to quantify does not mean they should be ignored. Often, the soft issues make or break a decision. A financial model is just one tool in the toolkit. Combine it with softer tools which take these other aspects into account.

Analogy #198: The Magic Eye

THE STORY:
Back in the 1990s, there was a popular entertainment diversion called the “Magic Eye.” These were colorful pictures that at first glance looked like just random patterns with no meaning. However, if you changed the way you looked at them, you could see a 3D image pop out of them and float in the space in front of the picture.

The secret to finding the hidden 3D shape was in the way you looked at the Magic Eye picture. If you focused your attention too sharply on the picture, you would never see it. Instead, you had to let your vision relax. Then, all of the sudden, the 3D image appeared.

It was a strange sensation. At first, you would look and look and look at the picture and be frustrated that you couldn’t find the 3D shape. Then, once it appeared, you were amazed that you had not seen it sooner, since it was now so clear to you.

At the top of this blog is one of those Magic Eye pictures. Later on, I’ll tell you what 3D image you should see in it.

THE ANALOGY:
Finding the proper vision for your company can be like trying to find the 3D image in a Magic Eye picture. Somewhere in that messy looking future is the proper vision, but at first it is hard to see.

Like with the Magic Eye, sometimes you need to relax your eyes in order to see the vision. Then it will pop out and look incredibly obvious. Once the obvious vision pops out, you can rally the troops to create the path which will make that vision a reality.

In this blog, we will look at some mental tricks to help make your vision pop out and become obvious.

THE PRINCIPLE:
The principle here has to do with taking advantage of the way your brain functions. In a recent issue of the New Yorker magazine (dated July 28, 2008), Jonah Lehrer wrote an article entitled “The Eureka Hunt.” This article looked at some of the recent brain research focused on how we, as humans, create moments of great insight—called Eureka moments.

In studying people who have had great insights into difficult problems, the scientists detected a pattern. First, the person would focus on the difficult problem at hand—gathering information, pondering the issues, struggling for a solution. Eventually, this effort would lead to an impasse—a dead end, a mental block. After all of that mental effort, no solution would present itself…it would seem impossible.

After the mental block, the person would walk away from the project and spend time in some innocuous activity—either some rote routine activity like taking a shower or some form of mind-numbing entertainment. Whatever the activity, the point would be that the former problem had slipped out of the conscious mind and the person was not aware that any further consideration was being given to it. It was as if the mind had taken a mental vacation from problem-solving and was in a passive mode—like on autopilot.

Then suddenly—out of the blue—the solution would present itself. It would be clear and obvious. There would be a sense of certainty that the problem was indeed solved. It would just take a little time to work out the little details.

How did the brain do this? Scientists said that first the brain intensely focuses on the issue. It shuts down a lot of the sensory areas in order to block out distractions. Then, primarily the left side of the brain goes to work seeking information and looking for a solution. This left hemisphere searching tends to reach that impasse.

That’s when the problem is shifted over to the right side of the brain. Although the right side of the brain tends to be less logical and less precise, the right side is better at connecting the dots for the big picture. It can draw from a larger, more diverse, more abstract world. This is all going on in the background while you are unaware.

When it finds a solution, the right side of the brain gets the attention of your consciousness, creating that eureka moment. Although it appears to be a sudden flash of insight, it is really the result of hard work in the mental background.

But here is the true secret. If you spend all of your time consciously focusing on the issue, you will keep the brain too isolated in the left hemisphere. You will never get past the mental block. To get the problem into your right hemisphere—where it is solved—you need to walk away from the problem, unfocus yourself and sort of let your conscious brain vegetate.

To quote the New Yorker article, “The relaxation phase is crucial. That’s why so many insights happen during warm showers…The big ideas seem to always come when people are sidetracked, when they are doing something that has nothing to do with their research.”

It’s like that Magic Eye. You can only see the 3D image if you stop staring intensely and let your eyes relax. Similarly, you can only catch the vision if you stop focusing intensely and let your mind relax.

So what are the implications for vision hunting?

1. Stop Focusing So Much On Focusing.
Yes, initially one needs to focus. But then, one needs to relax. Some people are known to use focus enhancing drugs, like Ritalin, to help them find insights. This article says to stop that. Those drugs keep the mind in the wrong place.

2. Walk Away and Find Diversions
It’s okay to take a leisurely break every once in awhile, even on company time. The article praises firms like Google that put ping pong tables in their headquarters. Firms need to encourage some of this more playful behavior. It was even suggested that companies might encourage sleeping on the job, since many great ideas come in that half-conscious state when one first wakes up (for more on this topic, see my blog “Genius Sleep”).

When I used to work at the former Best Buy headquarters, at those times when we would hit an impasse I would suggest a trip to the “automotive sculpture gardens.” Although it sounded glamorous, what I was referring to was a path on the property that went through a wooded swamp. There was a rickety bridge going over the swampy area. From the swaying bridge, you could see where someone had dumped old auto parts into the swamp. A few of the larger pieces stuck out of the wet and mucky goo. Hence, the “automotive sculpture gardens.”

The point was that a walk through a wooded swamp (with the accompanying insects and smells) was a distinct departure from the sterile and intense world of the corporate headquarters. It was a chance to get away from it all, so that your brain could subconsciously shift to the right hemisphere while you were mentally diverted into a more restful activity. This diversion helped create great insights.

3. Don’t Force Visioning Onto a Timetable
The more you force a timetable onto visioning, the less productive it becomes. Just because you take an Outlook calendar and block off 10AM as the time when a vision occurs does not mean it will happen that way. Studies show that great insights tend to come when people are in good moods more often than when under pressure.

Rather than trying to force an entire strategic planning cycle into a single, tightly-scheduled, meeting-packed week, let it be running in the background all year round. Annual strategic offsites are better served for communicating that “obvious” insight (which popped out at you earlier) and rallying the troops around it, rather than as the time when the insight is forcibly created.

SUMMARY:
If you want great visionary insights, first spend some time focusing intensely on the problem. But then walk away and relax. Both tasks need to be encouraged in your corporate culture.

FINAL THOUGHTS:
The item you were supposed to see in the Magic Eye picture at the top of this blog was a dollar sign. If you follow these principles, you should see more dollar signs in your business as well.

Analogy #180: Simple Grids

THE STORY
It’s a funny thing about choice. If you give people too many choices, they will get confused. There would be so many options, that a person wouldn’t be able to figure out with confidence which choice was the best for them. All the variations would be mind-boggling. Time is too precious to waste pondering over the merits between 50 different choices of peanut butter. As a result, most people would never be fully satisfied with a purchase in this type of situation, because of a nagging feeling that there might have been a better option among all those choices.

On the other hand, if you simplify the process and give people only one option, they typically aren’t happy, either. It feels too much like a cruel dictatorship to be told that you have only one choice. Resentment builds due to a lack of freedom of choice. People don’t like to be told what they should like. They want to feel important in the process, by having a choice in what they buy.

So people want choice…just not too much choice.

I personally discovered this principle when I was doing some consumer research on clothes shopping. I showed women a number of photographs of clothing departments and asked them which store they would prefer to shop in.

The women immediately rejected the stores showing a narrow assortment. They just assumed that a store with such few choices would not have anything they wanted in their size.

However, they also rejected the photos showing stores with a huge number of racks of clothing. That was too intimidating. The women tended to gravitate towards preferring the photos of stores with a medium number of racks.

Back in the old days of the Sears catalog, they tried to optimize the process by giving three choices for each type of product. They labeled them “good,” “better,” and “best.” It was simple. If you were most concerned about price, you got “good.” If you were most concerned about quality and performance, you got “best.” If you were looking for the optimal blend of features and price, you got “better.”

This gave people a choice without overwhelming them. It worked for many decades.

THE ANALOGY
We talk a lot in business about the product assortments we provide to the consumer. We try to optimally manage the breadth of assortment. The goal is to find that optimal middle point between being a cruel dictator and overwhelming the customer, just as the old Sears catalog did.

However, I rarely hear people talk about managing the assortment level of ideas provided to the management of the business.

To move a company forward strategically, choices need to be made by top management. If too many strategic options are offered, management can become overwhelmed, just like the consumers in the story. This slows down the process and makes it hard to get a business decision.

Inevitably, with too many choices, management tends to tell the presenters to get their act together, narrow the choices and come back at a later date. Time is too precious to waste on endless strings of meetings without decisions. While your management is gridlocked with too many choices, the competition is moving forward.

Worse yet, in an attempt to get a quick decision, the company may decide to try too many options at once. This tends to lead to disastrous conclusions. The lack of a clear focus confuses employees and customers. There aren’t enough resources (especially human resources) to adequately perform well on all options at once. Hence, rather than doing one thing well, one ends up doing many things poorly.

At the same time, if you only present one option strategic option to management, you can also create problems. The top decision makers want to make decisions. If you give them only one choice, then you have robbed them of their chief role. The only choice you have given them is to agree or disagree with the strategic option. And if they disagree, there is no fallback strategy. They are left with nothing.

However, the worst result from providing only one option is that you run the risk of not offering up the best option. The option may be good, but there may be something else which is better. Without comparisons of strategic options, how can management have confidence that they chose the right one? There is always the suspicion that the presenter has “stacked the deck” in favor of their pet project instead of the right project.

This can often lead to the “strategy of the month,” where a single option is presented and accepted, only to be upstaged at the next meeting when a different single option is presented and accepted. No option is fully realized, because of the constant shifting from one proposal to the next. Each succeeding proposal of a singular option looks good, because it isn’t pressure tested against options. So the continual shifting occurs, and no strategic direction is embedded into the organization.

By contrast, if all of those options were presented at the same time, a clear choice can be made which will be adhered to longer, because it has already won the debate against opposing ideas. There is greater confidence that the choice was the right one, so it will be implemented with greater levels of commitment.

THE PRINCIPLE
The principle here is that to achieve strategic success, one needs to present management with the optimal blend between too many strategic options and too few strategic options. As we saw in the example of the women’s apparel and the Sears catalog, a middle ground tends to be most successful.

So how do you create the impression of an exhaustive analysis of all the options (completeness) while making it easy for management to select an option to make a commitment to (simplicity)?

I like to use a two step process. The first step is to provide a simple conceptual framework. The second step it to then provide a list of specific strategic options in those areas of space most interesting in the conceptual framework.

For a conceptual framework, I try to stick to something simple like a two by two grid. Some popular 2x2 grids are variations of the ones illustrated below (the actual words on the axes will vary based on your particular situation). They include:

1. The Source of Growth Grid (Where do you want to look for future growth?)
2. The Risk/Reward Grid (How balanced is your Portfolio?)
3. The Consumer Appeal Grid (What is your point of differentiation in Targeted Consumers?)
4. The Competition Grid (What is your point of differentiation versus your competition)

Sure, modern statistical techniques and whiz-bang computer graphics can create all kinds of complicated multidimensional frameworks. The problem is that:

a) They are hard for management to comprehend.
b) They are hard for your employees and customers to comprehend.

If your position is so nuanced that it takes complicated multidimensional presentations to point it out, then your potential customers will never figure it out. That’s why I stick to simple 2x2 grids. They give enough completeness without overwhelming.

Then, once management decides on which squares in the grids to focus on, you can have a second discussion on which is the best available option in those boxes for your company.

SUMMARY
Strategic planning is about making the right choices about strategic options. In order to get top management to decide and stick behind a choice, one needs to find the optimal blend between too many choices (which overwhelm management) and too few choices (which can lead to constant switching of priorities). I suggest a two step process of first getting agreement on which area of the conceptual space is most important (through the use of 2x2 grids. Then, once the space is agreed on, a small list of specific options can be evaluated, and a final choice made.

FINAL THOUGHTS
Presentations which focus on “special effects” may wow the audience for a moment, but may not have much lasting value. Simple, easy to grasp concepts, like 2x2 grids may not appear as exciting, but can create great long term decisions. In the end, the goal is great decisions, not great entertainment.