In what appears to be a slow-motion march toward bankruptcy, Barnes & Noble announced its recent quarterly earnings; a -5.3% revenue decline to $1.2 billion and a loss of $63.5 million. This situation reminds me very much of Kodak in the period from 1995-2010. It sat back and watched its stock price go from $90/share down to virtually nothing, as the era of digital cameras emerged.
Basically Barnes & Noble started on this path to bankruptcy by sitting back and watching Amazon start up its online book-selling company. It was a clearly superior method of purchasing a book, with the availability of reader’s reviews, and reduced prices because Amazon had no bricks and mortar stores. Eventually Barnes and Noble started up a website to sell books but it was too late; Amazon owned the business by then.
Similarly, when Amazon came out with its Kindle and introduced the world to eBooks, Barnes & Noble again sat back and watched for a while and eventually brought out their own Nook e-reader. As with ordering books online, their e-reader faced a horrendous uphill battle in that the Kindle owned the business by that time. This story is very similar to Netflix emerging while Blockbuster watched and went bankrupt.
So why does this happen to successful companies? In the book I wrote several years ago called Seduced by Success, I cited the three core factors that cause successful companies to simply sit back, watch competitors take their business away, and then fade into oblivion. Here are the three key issues caused by success:
1.) Lack of Urgency – Success seems to lead to the avoidance of any kind of stress, in favor of basking in the glory of prior times. Individuals, companies of all sizes, government agencies, non-profits, and education groups are all vulnerable to this kind of behavior.
2.) Excessive Pride – Success and stability seem to breed a loss of curiosity and a defensive attitude toward any kind of new thinking that is critical of the current approach. This is sometimes called the “not inventive here” problem.
3.) Entitlement Mentality – Once you achieve some degree of success or stability, the world does not owe you lifelong success. Many individuals and organizations are so impressed with themselves and their achievements that they can no longer imagine a world where they are in decline.
It’s amazing how many very successful companies totally miss the notion that you should never allow your competitor to have a product that is superior to yours. You need to always be on the offense regarding anything that emerges that looks like a threat. You need to quickly launch a competitive product and improve upon it before the competitor gains momentum.