Billion Dollar Lessons: What You Can Learn from the Most Inexcusable Business Failures of the Last 25 Years, written by Paul B. Carroll and Chunka Mui, is an underrated book for investors. Written primarily for CEOs and management teams, the authors examined the most significant business failures from 1981-2006, with failures defined by write-offs of significant investments, the closing down of unprofitable businesses, or bankruptcy. A lot of the findings were nothing new, but the breadth and depth of the case studies make this book a worthwhile read. The first half of the book details these failure case studies across seven categories: 1) Synergy, 2) Financial engineering, 3) Rollups, 4) Staying the course, 5) Adjacencies, 6) Riding technology, and 7) Consolidation. The second half of the book, while useful to companies interested in avoiding the same mistakes, can be skipped for those who want the useful bits for investing and nothing else.
The business failures detailed in Part One are far-reaching and broad, taking the reader through cases that they have probably never heard of. The best chapters, in my opinion, were Faulty Financial Engineering, Deflated Rollups, and Staying the Misguided Course. The Faulty Financial Engineering chapter describes the rise and fall of Green Tree Financial, proving that there is nothing new under the sun. The similarities of Green Tree providing long-term loans on short-term assets to today's recent financial engineering disasters are striking. Green Tree was selling 30 year loans on home trailers with a 15 year useful life - and they were booking all the revenue up-front! My favorite chapter was Deflated Rollups, as my interest in j2 Global might show. A couple of quotes I liked from that chapter:
The author's conclusion is that while there are rollups that succeed, failed rollups are not due to bad execution - in fact, the rollup strategy is structurally flawed from the outset and generally produces diseconomies, rather than economies, of scale.
Staying the (Misguided) Course was another good chapter, especially given the modern innovation cycles taking everyone down. The chapter focuses on Kodak, and it was amazing to me that they knew that their traditional film would be threatened by digital (they sponsored a study in the 80s), they just underestimated the speed at which the quality of digital would improve.
Overall, great book - would highly recommend reading the first half as a fresh, structured look into business failures.