10 businesses that failed due to poor management

When launching a business, it can seem like a very daunting prospect: an entire financial entity under your stewardship. Like life in general, no-one said it would be easy, and ensuring its longevity is even harder. 75% of companies fail within the first 18 months, showing just how hard a task it is to build an enterprise from the ground up and manage the finances to a level which is sustainable.

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Here is a list of 10 companies that collapsed due to poor management despite building a seemingly insurmountable organisation.

1. Enron

A collapse that became so synonymous that if a company goes bust from a seemingly indomitable position, it’s called “doing an Enron”. Well, I’m not entirely sure about that, but Enron went from $100 billion in “revenue” and 29,000 employees at the beginning of 2001, to filing for bankruptcy at the end of the same year.

But how could that happen? It turns out that Enron’s executives were using accounting loopholes, special purpose entities and false error reporting to hide billions of dollars of debt from failed deals and projects. If they built a power plant and it was expected to make $2 billion in revenue, that was what was reported, rather than the money it actually made. Enron’s executives didn’t just mislead the board of directors, they also pressured their auditors to shred, delete and hide any evidence.

The $63.4 billion Enron had tied up in assets made it the largest corporate bankruptcy in American history until WorldCom’s bankruptcy in 2002.

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2. Toys R Us

One of the most recognisable adverts on TV, with a jingle that became increasingly annoying the older you got, Toys R Us and Geoffrey the Giraffe became a staple of nearly every childhood imaginable.

Toys R Us Limited entered administration on February 28^th, 2018 after mounting up £15 million in unpaid taxes. In November 2018, Fortune magazine noted that the absence of Toys R Us from the holiday season represented a $4billion gap in the market that other retailers could benefit from, which I’m sure they did.

3. Blockbuster

At its 2004 peak, Blockbuster employed over 84,000 people worldwide, with 9,094 rental shops. Six years later, in 2010, Blockbuster filed for bankruptcy due to $900 million debt and that competition from a small, unsuccessful company called Netflix, not sure if you’ve heard of them?

My childhood is absolutely plastered with memories of me walking in to Blockbuster of an eve and perusing the latest video game or movie rentals. Late fees became an issue in our household, but it seemed that Blockbuster would be around forever: unfortunately, the love affair was short lived as Blockbuster had to make way for online streaming services such as Netflix (which Blockbuster had the opportunity to purchase, by the way).

4. BHS

Owned by many housewives least favourite entrepreneur, Sir Phillip Green (calls have been made to revoke his knighthood, so this title is subject to change), British Home Stores (BHS) became part of Green’s Arcadia Group in 2009.

Despite early success, including a place on the FTSE 100 Index, BHS went into administration on 24^th April 2016, putting 11,000 jobs at risk. By this time, debts of £1.3 billion had been amassed including £571 million in pension liabilities.

Green made a tidy £1 on his sale of BHS, which meant he didn’t have to shoulder the burden of the debt which had been built up.

5. Woolworths

Let’s be honest, it was poor financial management and a lot of people’s love of stealing pick ‘n’ mix that led to Woolworths downfall, but we’re only here for one reason – and that reason isn’t jelly worms.

A favourite of high streets across the country, it was sad to see Woolworths disappear, but that’s exactly what happened starting in 2009 which caused 27,000 job losses, all store sites to close and Woolworths Group PLC to enter administration on 27^th January 2009, officially being dissolved on 13^th October 2015.

6. Comet

Comet was a giant in UK electrical retail, coming in second with 6,000 staff and 200 stores at its peak. However, none of that mattered on 1^st November 2012 when Comet announced it was filing for administration, with administration commencing soon after; the following day. By 18^th December, all stores and stock were liquidated and closed.

This was a stark contrast in fortunes for Comet’s owners, KESA Electricals throughout their time in charge of Comet. Just four years before Comet was liquidated, KESA posted profits of £128.8 million, but the year after there was a pre-tax loss of £81.8million, signalling the beginning of the end. This was something that KESA forecast at the beginning of the global economic crisis in 2007, as the credit crunch and higher interest rates lead to less consumer spending.

7. Kmart

Imagine going bankrupt not just once, but twice! That was the fate of Kmart, and later on Sears Holdings (parent company of Sears) after the two merged. The original bankruptcy came in 2002 when then-Chairman Charles Conaway and President Mark Schwartz did an Enron (I told you it would catch on) and misled shareholders and company officials about the company’s financial crisis, instead pocketing the money for their own gain.

Kmart had to fully restructure and merged with Sears for $11 billion in 2004, unfortunately this didn’t help for either party as in 2018, Sears Holdings filed for bankruptcy – the second bankruptcy in 16 years.

8. Compaq

Compaq was, once upon a time, the largest supplier of PC systems; but that was way back in the 1990s. Eckhard Pfeiffer became CEO in 1991, purchasing Tandem and DEC, taking focus away from the audience and market which had given Compaq so much success. As Compaq tried, and failed, to take their products upmarket and broaden their horizons, their competitors started to dominate their old market.

Pfeiffer was ousted in 1998, and Compaq was purchased by Hewlett-Packard in 2002 for $24.2 billion after not being able to recover their market share.

9. Northern Rock

You may remember the images from 2007 onwards of people queueing for miles to withdraw savings from their Northern Rock account after the subprime crisis. The global banking crisis meant that Northern Rock couldn’t produce income at the rate expected from its loan – once the news of needed government support broke, a bank run (the rush from the pictures you remember) meant people withdrew their savings and Northern Rock collapsed. The first British bank in 150 years to fail due to a bank run.

Northern Rock became defunct in October 2012.

10. Lehman Brothers

Lehman Brothers was the fourth-largest investment bank in America, but in September 2008 the company filed for bankruptcy. With $639 billion in assets and $619 billion in debt, the bankruptcy was the largest in history.

The problems in the subprime market should have alerted the organisation, but some serious downplaying by the Chief Financial Officer meant the warning went unheeded. Instead, the credit crisis signalled the start of the Lehman Brothers downfall. On 15^th September 2008, Lehman Brothers filed for Chapter 11 bankruptcy.

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