“Go big or go home.” That is the mantra for many dreamers out there who like to think big when it comes to planning a company or creating a business. Focusing on the big picture and being ambitious can get someone far, especially when they’ve got a good idea that they’re focused on growing. But there are plenty of examples of companies folding under the weight of their too-big dreams.
Silicon Valley is known for producing some major winners in the world of tech industries. Think about Facebook, Google, and Apple, for example. These brands gained the attention of billions and inspired those who dream of creating technology that will change the world.
Tech giants and start-up darlings have come and gone throughout the years as digital innovation has evolved. When it comes to being an industry star, the stakes are especially high for companies who want to climb their way to the top. If you really want to “make the world a better place.” it takes more than simply keeping up with the times to stay ahead of everyone else.
The Rise and Fall
The world of tech brands can change at any given moment. Companies that were once promising can fizzle out of existence for any combination of reasons. Some companies disappear without leaving an impression while other companies start out looking like they’re destined for stardom but end up just crumbling down to earth. If you’re a business owner, then a look at some of the world’s most spectacular tech industry failures can help you better understand corporate bankruptcy and apply that knowledge to your own company.
Five Major Tech Disasters Involving Bankruptcy
For some context, it’s good to know that the late 1990s was a unique time for tech. There was an economic bubble in which billions of dollars from venture capital went streaming into companies in the hopes that they would turn into the next big tech giant. Many of these companies succeeded and many of them failed. Some failed in the public eye. Here are five technological businesses that wound up disappearing after filing for bankruptcy.
Known today as being a ground-breaking service, Napster was originally created as a pioneering peer-to-peer file sharing service. It was widely successful for letting its users share digital files, mostly music, over the Internet. It launched in 1999 and was widely popular with its users and seriously disliked by the music industry.
The Recording Industry Association of America came up with a plan to sue Napster out of existence, which did eventually happen in 2001. Napster shut down as a result of legal injunctions and tried to stay afloat by reinventing itself. The company traded hands many times through the 2000s and was eventually acquired by a music subscription service.
2. Wang Laboratories
Once known as the David to the Goliath of IBM, Wang Laboratories was a tech company that specialized in computers made for word processing. The company was originally founded in 1951, but it peaked in the 1980s. At its best, the company yielded annual revenues over $3 billion and boasted over 33,000 employees.
The company’s eventual demise had to do with the fact that the world of consumer tech was evolving and Wang Laboratories did not keep up with the times. They stuck to word processing systems and all the while personal computers were emerging onto the market, making the Wang systems obsolete.
As 1992 rolled around, the company was forced to file for bankruptcy and cut 5,000 jobs from their offices. They stuck around for some years after that, and then in 2007 and 2008, went through acquisitions that eventually diluted the brand into nothing. Today we can recognize that the contributions that Wang Laboratories made to the world of computer hardware were completely fundamental to our modern-day products.
3. 3DFX Interactive
If you’re a gamer then you might be familiar with this company, 3DFX Interactive. A big name in the world of 1990s gaming, this company was founded in 1994 and became a pioneer in graphic chip developments. They manufactured 3D graphics processing units as well as graphics chips like Voodoo.
The chips made by 3DFX were the first generation of modern-day graphics, which accelerated game speeds and shortened rendering time. So where did everything go wrong? The company started to decline after some lackluster reviews and was eventually bought out by a rival. 3DFX then went bankrupt after losing its intellectual property rights.
Today, an online business that specializes in selling pet supplies doesn’t seem that innovative. Online shopping is a huge part of how we buy and sell commodities in our current day and age, however, this was certainly not always the case. Pets.com was an internet business that focused on exactly what their name suggests: online sales of pet supplies.
The pets.com brand operated from 1998-2001, just around the height of the dot-com boom and all the hype that surrounded Y2K. The company got a lot of initial attention and was off to a good start, however it lacked strong business fundamentals. Their structure made it so that they actually lost money on their sales, and it’s this poor financial management and lack of business development that eventually led the company to collapse. Known as a spectacular failure of the dot-com era, when Pets.com eventually folded, it took with it over $300 million of investment capital that the company had acquired in its start-up stage.
Another major player in the dot-com era, Flooz also operated from 1998-2001 and set out with a simple goal related to online sales. The company wanted to establish a currency that applied to uniquely to Internet merchants that could then be used as a loyalty program for consumers. Think: frequent flier miles and loyalty points for the online era.
One “fluz” was equal to one dollar, which users could then put towards purchases from partner stores like Barnes & Noble and Books.com. The company gained a lot of momentum during its first two years. The owners wanted the service to remain free, so the business earned income from transactions that were charged to stores. The business also relied on companies getting on board with the Flooz system, but lack of interest began to mount over time.
The company failed to consider one element of online shopping that is now so crucial to our digital experience: cybersecurity. The creators of Flooz.com were unprepared for hackers who used stolen credit cards to make illegal purchases.
In 2001, the FBI contacted Flooz.com to notify them that a major organized crime syndicate was using the system to launder money. By mid-2001, fraudulent purchases had made up nearly 20% of the consumer credit card transactions. The company was ultimately forced to close, but not before paving the way for future online currencies like Bitcoin.
What Can Business Owners Learn?
You might be asking yourself: what do all these stories of companies falling from grace have to do with owning and operating my business? For one, the demise of companies that were once valued at so much should serve as a reminder of the importance of innovation and being forward-thinking. Whether you are focusing on the future of the industry or simply your company’s financial future, foresight is a crucial element of running a successful business.
You likely aren’t shocked by how important it is to plan for the future with things like insurance and emergency funds. In the cases that we’ve discussed, it’s easy to identify when companies chose not to adapt their services. In some cases, they believe they’ve invested too much in their current mission and do not want to re-invest into something different. Other times, they remain blind to new innovations because they’re focused on what earned them their success. Both are forms of short-sightedness, which can happen to anyone.
When Your Business Is Struggling
Even though we can analyze trends and draw conclusions about what works and what doesn’t, it is still impossible to predict just exactly what’s going to happen. If you own a company, then you know just how much of yourself you put into trying to succeed. If your business is struggling with debt, then you need to get support from a credit professional who will assess your situation and educate you on your options.
For small business owners, there is often a fine line between personal finance and business capital. You are probably not surprised to learn that personal debt can affect your business negatively and that those effects can be quite serious when consumer proposals, bankruptcy, or Division 1 Proposals are involved. What’s more, a bad history of personal credit use can affect your business’s ability to borrow money since most lenders will consider your personal credit score even though you’re seeking a loan for your company.
Personal Finance Budgeting Affects Your Business
Before you start thinking about ways to generate extra income, you need to understand the value of budgeting. This is especially true if your personal finances need to improve and if they’re tied up with your business capital. A credit counsellor or financial professional can teach you how to make a budget that suits your income, debts, and lifestyle.
Without a budget, we can lose sight of our spending. Whether it’s for personal or professional reasons, having a spending plan is key. If you’re still on the fence about making a budget to organize your finances, here’s a short but concise list of the many benefits of budgeting:
- Allow you to set priorities and share them with others
- Staying within budget will build new habits and teach you to control spending
- The guesswork of trying find out what you can afford isn’t an issue when you have a plan
- Your financial stress will lower once you can start to measure and track your success
- You’ll start to think of money as a tool instead of something to spend impulsively
- Savings will grow
- Reduced spending will free up some income that you can put towards debt repayment
- You’ll reach your financial goals faster and learn how to speed up your savings by updating and modifying the budget
Focus Your Budget on Debt Repayment
You can account for debt repayment in your budget and you can plan for the future by incorporating savings into your plan, too. As you adhere to your budget and your savings grow, the anxiety and stress over not having an emergency fund will start to melt away.
One way to structure your budgeting is to focus mainly on cutting expenses and maximizing your debt repayments. To do so, become familiar with your spending patterns and have a general understanding of what to expect in terms of money coming in and money going out. Skipping out on a budget is a major personal finance misstep. Even though it might not be a glamorous way to plan for the future, it’s essential for managing your money.
Growing Business Capital
One way to manage debt is quite straightforward: generate a second income and dedicate those earning to paying creditors. For advanced cases of debt, this might not be enough, but it can help. Those who are entrepreneurial are likely already working around the clock, which can make it difficult to secure a second income to gather business capital and boost your company. You might not have the time for a part-time job and if you’re paying yourself, earning overtime is out of the question.
Are you thinking about how you can improve your finances and reduce money-related stress? Go ahead and get in touch for more info on how to handle personal debt, business debt, or a mix of the two. Friendly Licensed Insolvency Trustees and credit counsellors can offer you a holistic understanding of the options available to business owners looking to eliminate their debt and build capital.
If you are focused mainly on increasing your business’s working capital even as you live with debt, ask yourself the following questions:
- Can I improve my business model to minimize or eliminate unnecessary expenses?
- Is there an alternative model that requires less working capital and that won’t affect revenue?
- Can I use my personal assets to generate additional funds?
There are plenty of lessons to take away from the unfortunate stories of tech companies going bust, though one important one is the importance of checking in with your finances and planning for the future. There’s no set of rules when it comes to financial success – personal or business-related — but an outsider’s opinion can sometimes be the thing you need to take charge of your money.