$600 Million Dollar Companies Suffer Costly Product Flops, Too | by Rachel Greenberg | May, 2021

If you’ve never experienced entrepreneurial failure, it feels something like this: A punch in your gut, a lump in your throat, a furrow in your brow, and your brain attempting to quell the cognitive dissonance erupting inside your head, as you try to reconcile the money you’ve invested with the blatant market rejection mocking your incompetence.

Now, imagine that exact same feeling of failure hitting you 330+ times, over and over, giving you hundreds of reasons to call it quits. Would 330 failures be enough to deter your entrepreneurial journey? Would it even matter if you had a few successes interspersed to offset the sting of those failures?

You might say no, but this $600 million company didn’t waste a minute of time wallowing in their 330+ failed products. Some of those products hadn’t seen sales in years. Some had never received a single purchase — not one! This is from a company with a 9-figure marketing budget — and there are still some products they’re unable to sell to even one person in the entire world!

Despite those hundreds of failed products, this $600M company isn’t breaking a sweat for one very simple reason: They have over 10,000 SKUs. They’ve mastered the diversification game with a 10,000 product experiment to ensure they throw enough options at their audience that some are bound to stick. So long as that failed percentage remains the minority, they aren’t losing a wink of sleep.

If you want the secret to freezing time, launch a product and keep your eyes glued to the sales notifications. The impatience in those first few minutes or hours — sometimes days — before the campaign starts to pick up speed is beyond torturous.

Now, imagine waiting a month, watching that pot fail to boil. How about 6 months? A year? Two?

At some point, you might weigh a few different options:

  1. Throw more money at it with a different marketing campaign
  2. Give up and forget about it — if accidental sales occur, great
  3. Lower your prices

Most companies likely progress through those options in a linear succession, starting with the marketing campaign, considering abandonment, and ultimately slashing their prices. This $600M company, however, made a beeline for number three — and they didn’t tread lightly.

Everything you know about business and entrepreneurship probably leads back to one principle: You should opt to sell your products or services for more than it costs you to make or deliver them — that’s called being profitable.

This company decided to chuck price floors altogether, dropping their prices dramatically — as in, lower than cost. Put plainly, they’re selling products for a negative margin, fully accepting that each sale will net them a big fat negative return. And they’re doing that for hundreds of products, in some cases selling them for half as much as they cost to produce.

If that were my company, I might lament those losses. For them? It was simply the cost of doing business.

As a private company owner or self-employed individual, you have the luxury of failing in secrecy. Without a public ticker, shareholders, and a board of advisors, you’re welcome to sweep your failures under the rug if you please.

For a publicly-traded entity with both shareholders and auditors looking over their shoulder, failure must be documented in a much more official manner.

This $600M company opted for a write-down of “slow-moving inventory”. For every month that inventory remained unsold, they would lower its value and increase the associated expense. Without getting technical, the outcome here is simple: They considered their inventory to be of diminishing value the longer it sat in their warehouse — or on their books.

Imagine investing $100,000 into a product, only for the value of your investment to dwindle each day you failed to make a sale. Now, imagine offering up all $100,000 for just $20,000 — an $80,000 loss — simply to be rid of the headache of holding the product. That’s exactly what this company chose to do. They accepted 80% losses to wipe their hands of products they couldn’t successfully market and sell.

Yet, they continue plugging along, watching their stock price rise, in tandem with their $600M+ valuation. They don’t shout their failures from the rooftops, and they certainly don’t let them define the trajectory or perception of their entire company. They don’t write “failure” in their annual report; instead, “slow-moving inventory” disguises those marketing blunders and unfortunate investments.

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