Martha Stewart's 10 Biggest Management Mistakes
By Patricia Laya
Martha Stewart Living Omnimedia (MSLO) has been profitable in only one of the past eight years. So where did Stewart go wrong?
"I really cannot be destroyed." —Martha Stewart
Just a year ago, Oprah called Martha Stewart's comeback "incredible," claiming she stood "stronger than ever." She was referring to Stewart's journey after a 10-month sentence in 2005 for lying to government officials about a stock sale.
However, Martha Stewart Living Omnimedia (MSLO), Stewart's empire of magazines, TV shows, and DVDs, has been profitable in only one of the past eight years. It has lost a total of $185 million during the same period, according to a great profile by New York magazine.
So where did she go wrong? Here's a compilation of some of the biggest management mistakes Stewart has made since 2005.
1. She assigned Charles Koppelman to the board because he told her what she wanted to hear. Koppelman, who specialized in advising celebrities in trouble, quickly became Stewart's confidant. Even though he was responsible for important deals, like Sirius XM and Home Depot, Koppelman was known to be a big spender who chased hits at the expense of building artists’ careers.
He became chairman of the board in 2005, where he negotiated a paid consulting arrangement for himself. He was viewed as enabling Stewart’s self-regard as much as tending to the company’s well-being.
"He told her the stock should be at $30," an executive recalls. "I asked him, 'What's your math?' He’d call me negative."
2. She couldn't keep quiet. During an appearance on CNBC in 2009, Stewart said she was glad her contract with Kmart was expiring at the end of the year, claiming she was "extremely disappointed" by shabby stores and poor-quality merchandise. MSLO still hasn't recovered from the merchandising loss stemming from the end of the deal.
In fact, MSLO would need to repeat its 2007 performance—when it made $10 million on revenues of $203 million—for 16 consecutive years before the company could break even.
"Ms. Stewart should accept responsibility for her product," Kmart responded.
3. She lost the humble image she gained from jail. Stewart soon stopped mentioning her experiences from jail and became increasingly confident.
In an article in Fortune, she declared her big takeaway from the ordeal to have been: "I really cannot be destroyed."
4. She was so focused on doing things herself that she kept others from doing their work. Even though Stewart had a reputation of being a difficult boss, talented executives kept coming to the company, only to leave soon after, defeated in their efforts to bring the company back to health.
"Before you go there, you can't imagine how bad it is," says a former executive. "You can’t imagine that a company with a brand that's so big could keep functioning with so much dysfunction."
5. She paid her daughter and Koppelman's daughter almost $1 million to host a show on her network. Stewart didn't only hire her own daughter, Alexis Stewart, who is paid about $400,000 to host "Whatever, Martha!" She also hired Koppelman's daughter, Jennifer, to co-host with her. Stewart's sister-in-law, Margaret Christiansen, is also a senior vice president.
6. She didn't want anyone else in the kitchen. A lot of deals were far along when Stewart would find something wrong with them. In some cases, she would cancel the deals last minute after meeting with the prospective brand owner.
Former MSLO executives told New York magazine Stewart is extremely difficult to work with—that she once insisted on personally approving more than 3,000 items, sent staffers across the world for a swatch of fabric even while going over budget, and dismissed weeks-worth of labor over minor details. "There's a list of things she loathes," says someone who edited food stories.
7. There was an incredible divide between what Stewart was interested in and what her readers wanted. The company suffered from the challenges facing all media companies, including not knowing how to deal with the digital media age.
"She's going against design trends. The look people want today is cleaner and less fussy than what she's been associated with," says Adam Hanft, CEO of Hanft Projects.
"As Martha got fancier, readers were going in the other direction," a then-editor toldNew York magazine.
8. She refuses to step back. Brand experts say MSLO needs to move beyond its founder to survive, while keeping its ties with her aesthetic.
Except in the case of a few exceptions like Oprah Winfrey, the notion that an individual can sustain an entire enterprise is a "terrible idea," says Columbia Business School's Bruce Greenwald. "Talent is relatively short-lived and replaceable."
9. She went on a merchandising frenzy. Koppelman wanted to put Stewart's name on vitamin supplements, clothing, and convection ovens.
"It was exactly the opposite of what we preached," says an executive, "which was that we didn't just put our names on things—we create things."
By last year, the company had done a variety of licensing deals, including video games, a wine with Gallo, branded weddings at Sandals Resorts, and frozen dinners at Costco.
10. She kept up her pre-jail extravagent costs. "The entire workday would come to a halt so we could discuss the virtues of sea-foam green over more of a blue-green, and would take literally 30 minutes," remembers an editor.
Despite being tight on cash, Stewart would still send staff members to faraway places just for a piece of fabric. Her annual compensation package grew from $2 million in 2007 to $10 million in 2009, while also receiving a $3 million onetime "retention" and "noncompete" payment.