10 Big Business Blunders
Ego and greed: a common recipe for executive error
Convinced that Atlantic City would soon eclipse Las Vegas as the nation's gambling center, Trump invested billions beginning in the mid-1980s on behemoths like his over-the-top Trump Taj Mahal. "I can't get into trouble in Atlantic City!" he boasted at its opening in 1990.
But the Taj cannibalized revenue from its neighboring properties, the Plaza and the Castle. And when the recession of 1990-91 sent customers fleeing from the blackjack tables at all three, Trump couldn't pay the more than $1 billion in debt he'd rung up. Narrowly averting bankruptcy, he managed to keep control of the properties by relinquishing much of his original stake and taking the company public in 1995.
Yet Trump Hotels hasn't posted an annual profit since. From a high of $34 a share in 1996, the company's stock sank below 20 cents after it was delisted by the New York Stock Exchange in September. Burdened with a crushing $1.8 billion debt, the company declared bankruptcy for a second time last month. Amazingly, however, Trump saved his CEO status, thanks, in part, to his ponying up $72 million ($55 million of it in cash) to help revive the company.
It's a performance that would make his present-day apprentices blush.
IRIDIUM
The sky really is falling
Blame it all on Karen Bertiger. Just married to a Motorola engineer in 1985, she refused to go on her honeymoon because there was no cellphone service on Green Turtle Cay in the Bahamas. "If you are such a smart guy," she told her husband, Bary (who had patented the communications system for the Voyager spacecraft), why is it that "I still can't make a cellular phone call from anywhere on Earth?"
Thus began one of the largest fiascos in business history. Seizing on the idea, the can-do crowd at Motorola ran Bertiger's idea up the corporate flagpole. The leviathan effort would cost billions, but CEO Robert Galvin figured that by spinning it off and teaming with a host of worldwide partners, it just might work. More than a decade and $5 billion later, Iridium's network of 66 low-flying satellites was finally launched in 1998. "The potential uses of Iridium products are boundless," Iridium's then CEO Edward Staiano decreed.
Yet Iridium's brick-size phone was a far cry from the tiny cellphones flooding the market. Even worse, users had to be outdoors to make the line-of-sight connection needed to communicate with its satellites.
With fewer than 50,000 subscribers by 2000, the company declared bankruptcy. And the low-flying satellites were expected to fall from the sky. But before they did, Dan Colussy, who'd made a fortune refurbishing aircraft, purchased Iridium for $25 million, paying half of one cent for every dollar originally invested--perhaps the greatest deal since the Louisiana Purchase. With lower airtime fees and handsets that cost half what they did in 1998, the company recently announced that its subscriber base had grown to 100,000 and that it had even turned a before-tax profit.
IBM
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Hindsight can be a painful thing. Just ask Gary Kildall, the inventor of the CP/M operating system, one of the first designed for a personal computer. In 1980, destiny knocked on his door in the form of a team of blue-suited IBM executives. They'd been referred by none other than Bill Gates, who'd struck a deal with Big Blue to create software for IBM's first personal computer.
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