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5 Of The Most Spectacular Business Collapses

The bigger they are, the harder they fall. While we usually prefer to focus on the positive and inspirational, there are important lessons to be learned from a company’s downfall too. Here are some of modern history’s biggest business collapses, and what you can take from them as a business owner today.

 

On 15th September 2008, Lehman Brothers filed for the biggest bankruptcy in history

Lehman Brothers

The rise and fall

On 15 September 2008, Lehman Brothers filed for the biggest bankruptcy in history. This marked the moment when global financial markets began to plummet. The bank was a casualty of the subprime mortgage crisis, giving mortgages to insufficiently checked candidates. The bank repackaged the bad loans together as investment opportunities. As the recession took hold, hedge funds got wind that the bank was in trouble and began betting on the bank’s failure. With the bank’s demise, more than 25,000 people lost their jobs.

The lesson 

Stocks fluctuate, people are constant.

The collapse of Lehman Brothers has been attributed to the risk taking and complicated financial products that were aggressively pushed at the bank. Risk taking is often talked about as a key quality for entrepreneurs, but it is important to ensure that your most important assets, your people, do not end up being sacrificed for the sake of a gamble. Taking risks when times are good is all very well, but there’s no such thing as stable stock or financial markets. Do a risk assessment of your business and neutralise any areas that may be exposed to a downturn or market drop.

 

Switzerland’s national airline went from being a venerable institution to bankruptcy and government bailout.

SwissAir

The rise and fall

Switzerland’s national airline went from being a venerable institution to bankruptcy and government bailout, handing over their status as national airline to Crossair. How did this once respected, financially stable and orderly airline fail so spectacularly?

Profitable throughout the 1990s, the first signs of trouble came after the 9/11 terrorist attacks in 2001, when most of the world’s airlines took a financial hit. However, the collapse is more strongly attributed to too much debt, high costs and too little revenue to justify a series of partnerships with other global airlines it had entered into, in a bid to keep up with its European competitors.

The lesson 

Don’t rush to create an empire.

Consider partnerships carefully. The ultimate downfall of SwissAir can be put down to its choice of partners. Most of the airlines it made deals with were unprofitable. SwissAir also prioritised these deals over quality of service, which declined severely, much to their customer’s dismay.

Forever entwined in our minds with the legendary Back to the Future franchise, it is easy to forget that DeLorean never really lived up to the name it made for itself.

DeLorean

The rise and fall

Forever entwined in our minds with the legendary Back to the Future franchise, it is easy to forget that DeLorean never really lived up to the name it made for itself. John Z DeLorean, the highly esteemed Group Vice President at GM Motors, had gone out on his own to create the ultimate high tech sports car. It didn’t go as planned. DeLorean’s lofty dream ended in collapse, lawsuits, and for its founder, a trial on drug charges.

The lesson

Don’t get carried away with the dream.

For someone with so much experience in the automotive field, there seems to have been a lack of rigorous testing of the manufacture and quality of the DeLorean model. Inexperienced production line staff in Northern Ireland, a lack of engine power, problems with body paint…the list went on. The problems meant only 9,000 units of the DeLorean were produced, not nearly enough to recoup the costs and investments in what was meant to be a mass production model.

DeLorean was a maverick, but one who should have known better. Make sure you test your idea/product rigorously before you bring it to market.

Blockbuster is seen as the most high profile casualty of the digital age.

Blockbuster

The rise and fall

The company is seen as the most high profile casualty of the digital age. Blockbuster had risen to global prominence in the 1990s, profiting on consumer’s desire to get to see a film as soon as possible after they had missed it at the cinema. However, a fall in box office sales and the rise of online streaming services meant Blockbuster’s time was soon to be up. A once highly visible high street brand, Blockbuster eventually vanished from UK streets in 2013, after the company filed for bankruptcy protection in 2010.

The lesson

Don’t throw the baby out with the bathwater.

Yes, the service Blockbuster was providing was becoming obsolete, but the company could have built on its simple premise and better positioned itself for an eventual move online. We could have seen it competing alongside Netflix today. However, instead of focusing on customer experience and service, it tried to reposition itself as a multi-convenience entertainment store. And, as there were so many other stores that were doing it better, and weren’t trying to push an out-dated service on its customers, that strategy ultimately failed.

 

Enron

Enron

The rise and fall 

Enron Corp was formed via a merger between Houston Natural Gas Co. and InterNorth Inc. It expanded to become the country’s biggest energy trader and supplier and was named America’s Most Innovative Company by Fortune from 1996-2001. Now, it is remembered for one of the biggest scandals in financial history. But what did they actually do? Enron directors hid its mountains of toxic assets and debt via a scheme of off-balance sheet SPVs (subsidiary companies) and gave the impression of a financially healthy business. The plans relied on Enron’s stock continuing to rise – they didn’t, and the risky business was exposed.

The lesson

Don’t overstate your worth!

Although we must assume multi-million dollar fraud is far from your intentions, it can be tempting to overvalue and ramp up projections for a business in order to gain interest from investors. Let’s face it, we see this unravel time and time again on Dragon’s Den, so it really doesn’t work for anyone. At best, you’ll receive a stern talking to and be shown the door, at worst, you will be investigated by auditors.

 

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Kayleigh Ziolo is a freelance journalist and writer based in Ireland. Follow her on Twitter @Kayleigh_Ziolo

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