Entrepreneurship Failure: The of Blockbuster - Case Study Example

Entrepreneurship Failure: The Case of Blockbuster Institutional Affiliation Research shows that 80 of out of 100 businesses fail within the initial 18 months (Wagner 2013). There are many factors attributed to this high rate of failure. This research paper explores the case of Blockbuster, a movie rental company, which enjoyed great success in the 80s and 90s, but several factors led to its failure and eventual closure. The background of the company, factors that contributed to its collapse and measures that could have averted its failure will specifically be discussed. Background Blockbuster was once the most successful movie rental chain in the world. The company was established in 1985 by David Cook, who opened the first Blockbuster Store in Dallas USA. From the start, the company was a success that would later revolutionize the movie industry. Its movie store was about three times bigger than its nearest competitor. The company opened its doors for customers more than other video stores of the time. Probably the most important move for the company’s future growth, was its unique vision and mission. The founder resolved that the company would be a family friendly center and would not deal in adult films (The Street, 2014). In September 1986, Blockbuster resolved to raise capital through public offering. However, few days to its completion, a news article sparked skepticism on the capacity of Cook to manage a video company. To improve its cash base, the company engaged in garbage collection that was considered a good enterprise at that time. On February 1986, the founder of Waste Management (WM) Wayne Huizenga and other investors bought one-third of Blockbusters Stock worth $18million. A few months later, Cook gave up the complete control of the company to Huizenga. While Cook had planned a continuous growth for Blockbuster through franchising, Huizenga intended to do what he does best-eat up competitors. Subsequently, Huizenga acquired many Blockbuster’s rivals, and also bought back most of the franchised stores hence expanded the company geographically. As the name Blockbuster suggests, the company looked like a blockbuster (The Street, 2014). In another move to fuel its growth, the company bought Sound Warehouse and Music plus music chains and opened music Mega-stores in the United States and Australia in partnership with Virgin Retail. The firm also invested in computer technology and acquired stakes in big production firms (The Street, 2014). In September 1993, Blockbuster proposed a merger worth $4.7 billion with Viacom, a media giant. It invested heavily in Viacom to help it win a bidding war it hand engaged with QVC for Paramount Communications and to establish itself in the lucrative media market. The events that followed drove down both Blockbuster’s and Viacom’s stock. Eventually, Viacom bought Blockbuster for $8.4 billion. Subsequently, Blockbuster experienced an extraordinary resignation of CEOs at a rate of one for three years. Huizenga resigned in 1994 and was replaced by Steven Berrad. Berrad was replaced by Bill Fields, former executive of Wall-mart after just a year. Fields resigned in 1997 and was replaced by John Antioco, taking over the company at a time when it was in a shaky condition (The Street, 2014). Viacom sold Blockbuster to Warehouse Entertainment in 1998 for $ 115million. During this time, Blockbusters had commenced shutting down some of its international stores, cutting rental orders and eventually returning to its original video rental business. At the time, the internet was emerging quickly and was viewed as a possible replacement for the video industry. Thus, at this time, Blockbuster faced competition from Amazon that had extended its business from selling cheap books online to cheap DVDs and a small company called Netflix that had initiated an online video subscription service. Blockbuster adopted the internet technology too late despite its awareness of the effect this new technology could have on its business. In the years that followed, blockbuster entered into partnerships toward streaming video, in addition, planning its own subscription service to compete with Netflix, but it was not until 2004 that it started its online DVD rental program in the US (The Street, 2014). Blockbuster went bankrupt in 2010 and was sold to Dish Network in 2011. The demise of the company happened in 2013 when it resolved to close down the few remaining stores in the United States (Satell, 2014). Why Blockbuster Failed The first reason that sunk Blockbuster into bankruptcy was its negative relationship with clients. The company earned a huge amount of money by charging its clients late fees. This had become a crucial part of the company’s revenue model. Blockbuster ignored the truth that customers should be handled with care and in a friendly manner. By penalizing its customers heavily for late submission of video tapes and making it a pronounced culture of its business created a negative relationship with the clients. The company failed to acknowledge that most of its customers worked on a busy schedule and did not have time to watch video during daytime leave alone returning the videos by the deadline fixed in the early afternoon (Satell, 2014).Blockbuster seems to have been ignorant of the universal truth that the customer is the biggest boss, and he can send anyone packing, from the CEO to the lowest ranked employee by simply spending his cash elsewhere. Since competition was rising from companies such as Netflix and Amazon, the customers could slip to the friendly companies given the slightest chance. Netflix that sometimes back could not be compared to Blockbuster came up with an innovative model. Instead of renting videos, it offered subscription service that eliminated the need for the perturbing late fees. Customers were able to watch movie for as long as they wished or return it and obtain a new one without having to pay late fees. The customers’ only task was to go to their mailbox to obtain and return videos (Satell, 2014). The other grave mistake made by Blockbuster was its lack of foresight or rather assumption of the effect the internet technology would have on the movie industry. Subsequently it ignored the changing needs of its customers. Proactive companies, in particular Netflix, seized the opportunities presented by the growing internet technology. They developed internet streaming program and further provided movies on various devices as computers, play Station and smart phones. By the time Blockbuster established its video streaming; other companies had already dominated the service and won the loyalty of customers (The Street, 2014). Blockbuster also lacked good strategies in expansion of its physical resources. The company spent too much on building retail outlets. More physical stores meant more employees required to manage the business. With the rising popularity of Netflix that offered better customer service, Blockbuster’s stores were rendered unprofitable. The huge investments in retail stores, salaries for them many employees and huge amounts of debts rendered Blockbuster incapable of upgrading into online rentals (Satell, 2014). Disputes in leadership also lead to the downfall of Blockbuster. In 2007 when the company was on verge of collapsing, board room infighting occurred and one of the most catastrophic changes of CEO in the United States business history ensued. The new CEO had scanty understanding of what the business of Blockbuster really was at the time. He began altering the game plan including withdrawal from internet efforts that perhaps could have saved the tumbling Blockbuster. Within eighteen months, the Company had lost 85 percent of its capital value. Within two years, it lost it all (Daindunston.com, 2014). In addition, poor management decisions lead to the company entering into an unsuccessful merger with viacom. The failure of the merger resulted into the acquisition of the company by Viacom and the high rate of CEOs exit. The many CEOS that successively took over the management of the company had different approaches to leadership, and this had an adverse effect to Blockbuster (The Street, 2014). What could have been done to avert the death of Blockbuster? Blockbuster did not have to fail because it had proven its ability to thrive while other companies failed in the 1990s.It was Blockbuster that killed most of the video stores in the 1990s.The company was everywhere and had extended its tentacles to other sectors other than the movie rental business. Certainly there were things that ought to have been done, but were either never done or were wrongly done. Most of the woes of Blockbuster revolve on poor planning. The management had ambitious plans for the company but it seems there was inadequate planning in terms of information gathering and risk assessment. The first illustration of poor planning is seen in 1993 when the then CEO made a decision to merge with Viacom which was well established in the media sector at that time. The merger was not a bad decision given the status of Viacom. The problem arose when Blockbuster resolved to drain a lot of its funds in Viacom in order to assist it to win a bid of acquisition of paramount communications against another strong company, QVC, in expectation for good returns (The Street, 2014). The two companies failed in their interests but Blockbuster was the biggest loser and was acquired by Viacom (The Street, 2014). If Blockbuster’s management had adequately gathered information and assessed the risk it was engaging in by pumping a lot of its funds in Viacom to sweeten its acquisition deal bid, which was apparently a win/lose situation, it could have retained it large capital base that could have enabled it to thrive in the face on rising competition. In addition, Blockbusters decision to invest heavily in physical retail stores was not the best one because it tied most of the company’s funds which could have been directed to better investments. Adaptability could have been the most certain savior of Blockbuster. Certainly, most of the company’s customers in the 1990s visited its retail stores out lack of option because the company was very harsh as seen in the heavy penalties for lateness and the high prices for videos. In the first place, the negative reputation the company earned itself through is harsh tactics and high prices could have been avoided since the beginning (Satell, 2014). Since that was never done, adaptability in the face of rising competition could have saved the company from dying. The company should have adopted better pricing as its competitors such as Netflix were doing. The company should also have adopted more customer friendly tactics. Most importantly, the company should have swiftly adapted to the internet and new technology such as DVD. It seems Blockbuster was always far behind its main rivals in technological matters because the company took so long to achieve basic technological advances while the competitors were focusing on even better technology. Lastly, better leadership could have saved Blockbuster. The success of any enterprise is not only a function of the huge amount of resources or quality workforce but also the kind of leaders the company has. While the early leaders of Blockbuster such its founder Cook and Huizenga seemed to head the company in the ambitious, right direction, the subsequent leadership did not quite match the qualities of the previous two leaders and their inefficiency to head Block-buster toward achievement of its business goals is probably explained by the high turnover rate of CEOs between 1993 and 1997 (The Street, 2014). However, the company’s executive could also have averted the imprudent change of CEOs by creating cohesion in the company. The 2007 incidence where the then CEO was undeservedly replaced following a boardroom dispute could have been averted had there been cohesion among the executive. The company could have been salvaged since it is the new CEO’s strategies that drove the company to bankruptcy (Daindunston.com, 2014) In conclusion, the success or failure of a business is a function of many factors. Blockbuster once stood as the biggest video rental company around the globe. The company failed because of poor customer relations, poor planning, leadership disputes and failure to quickly embrace new technology. These failures lead the company to closing most of its businesses, bankruptcy in 2010 and the ultimate closure in 2013.The company’s death could have been averted through more informed planning, swift adoption of technology, quality leadership and formulation of customer friendly policies. References Daindunston.com, (2014). When Blockbuster Forgot What Business They Were In | Dain Dunston. Retrieved 20 October 2014, from http://daindunston.com/when-blockbuster-forgot-what-business-they-were-in/ Satell, G. (2014). A Look Back At Why Blockbuster Really Failed And Why It Didnt Have To. Forbes. Retrieved 20 October 2014, from http://www.forbes.com/sites/gregsatell/2014/09/05/a-look-back-at-why-blockbuster-really-failed-and-why-it-didnt-have-to/ The Street, (2014). Blockbusters Rise and Fall: The Long, Rewinding Road. Retrieved 20 October 2014, from http://www.thestreet.com/story/10867574/3/the-rise-and-fall-of-blockbuster-the-long-rewinding-road.html Wagner, E. (2013). Five Reasons 8 Out Of 10 Businesses Fail. Forbes. Retrieved 20 October 2014, from http://www.forbes.com/sites/ericwagner/2013/09/12/five-reasons-8-out-of-10-businesses-fail/ Read More