Do you remember Zenith personal computers from the 80’s?
They grew massive and became the 2nd biggest maker of IBM compatible personal computers, and could have become the DELL, HP, or Lenovo of today.
But what stopped them?
Well, they’ve got an interesting back story, which many don’t realise.
In the 40’s eccentric mastermind Commander Eugene McDonald led Zenith to a dominant position in radio and television. Becoming the No1 manufacturer of black and white televisions.
Then, when Japanese televisions began to gain market traction, Zenith didn’t take the threat seriously and arrogantly ignored it.
Zenith viewed Japanese products as inferior and cheap, which could not possibly pose a serious threat to a great American quality brand.
In the 60’s (then the No1 maker of colour televisions) instead of taking the Japanese threat seriously, Zenith invested in a massive increase in manufacturing capacity, doubling their debt-to-equity ratio.
The Japanese threat materialised, and Zenith extra manufacturing capacity wasn’t needed. But instead of taking the blame themselves, they cited other issues such trade practises, a struggling U.S. economy, labour unrest and oil shocks, rather than their own lack of competitiveness.
Saddled with extra capacity, Zenith eventually had to lower prices in a battle for market share and take on more debt, which seriously hit their profitability.
They panicked and diversified quickly into VCR’s, videodiscs, telephones, home security products, cable TV de-coders and personal computers, hoping something would stick.
Their salvation came through Jerry Pearlman, who headed their newly formed Data Systems division. Pearlman brilliantly led Zenith to the No2 maker of IBM compatible personal computers.
Pearlman and the Data Systems division ended up generating more than 50% of Zenith’s total revenues and nearly all their profits.
But there was a sting in the tail.
Zenith still had the television business, and even after going through years of denial searching for salvation, they would just not let it go.
Because of this, Zenith’s financial position deteriorated further, massively impacting on their cash flow. Pearlman even tried to sell the television business, but it was too late, and he didn’t get the price he wanted.
If Zenith had accepted it’s mistakes a few years earlier, rather than flogging a dead horse, they would have been able to close the television operation and use their remaining funds to turn themselves into the world’s greatest personal computer company.
In 1989, due to angry shareholders and half a billion dollars of debt, Pearlman has little choice, and sold Zenith’s computer business to Bull Corporation to raise cash.
Even then, Pearlman tried to rebuild Zenith, but they still had the television business, which continuously dragged them down. In 1995 Pearlman stepped down and LG bought their shares.
It’s a story about two things really. Not taking your competition seriously, and not accepting you must change and stop doing the same old things.
Like Zenith, back in 2010, we found ourselves at that tipping point with a choice to make.
Back then, we operated a network of retail stores selling printers and consumables, but the competition from super supermarkets and online stores became unstoppable.
We bumbled on a few years ignoring the brutal facts just like Zenith did, whilst our business and profits eroded before our very eyes.
It was serious stuff. Our choice was simple but stark. Change the business model now or lose everything you’ve worked for, including your house.
We chose to accept the brutal facts, closed the retail stores, and changed the business into an office technology business, providing affordable office technology solutions in monthly payment schemes.
Don’t get us wrong, it was a very hard thing to do. But we’d rather that, than our team loose employment and us loose our house. It was a roller-coaster ride, which we even wrote a book about.
…when faced with the brutal facts, what would you do?
