Throughout the 1990s, pundits proclaimed that the traditional rules of business had changed. Here are seven myths of the new economy that smart CEOs fell victim to.
Cover Story
Some of the smartest CEOs around bought into the myths of the new economy. Here's what they learned--the hard way
In order to survive-- and thrive--in today's virtual, global, tech-savvy, knowledge-managing, turbocharged, just-in-time economy, every CEO must fuel megagrowth while mastering the discipline of empowering intrapraneurs to innovate--or die.
Or so the business gurus would have you believe.
The landscape of the 1990s has become littered with sexy concepts for explaining how business has changed, catchy slogans proclaiming that everything you know is wrong, and rebellious new rules for making it in this, the new economy.
The proliferation of all these "revolutionary" ideas created new imperatives for CEOs and entrepreneurs. Call them the Myths of the New Economy: Grow as fast as possible or perish. Raise as much cash as you can, and right now. Empower your employees to become like entrepreneurs. And so on.
It became impossible to ignore the hype. A lot of entrepreneurs bought into these promises too hard. They reshaped their businesses and their lives. They forgot, for the moment, that there is no easy answer. (Gertrude Stein once wrote, "There is no answer. There never was an answer. There never will be an answer. That's the answer.")
The smart ones caught themselves in time. Take the few who tell their stories here. They rectified ill-conceived moves made in the heat of the moment. They learned timeless lessons about trusting their own experience and common sense. Now they share those lessons in these war stories from the front lines of the new economy.
7 MYTHS OF THE NEW ECONOMY
- Grow or die
- You must be virtual
- Go global
- Capital is easy
- Everybody is an entrepreneur
- Technology makes life easier
- You must be on the Web in a big way
MYTH NUMBER 1: 'GROW OR DIE'
Grow like crazy
THE PRESIDENT: Mark Begelman
THE COMPANY: Office Depot Inc., a Delray Beach, Fla., retail giant
THE BUY-IN: "I always felt there was tremendous pressure on us to continue the rapid growth."
In the early 1990s, when Mark Begelman was president of Office Depot Inc., it was the world's largest office-supply chain, but it wasn't big enough for Begelman. He believed that the only way to remain competitive was to grow, grow, grow. "We were a rapid-growth company that traded on future earnings," he says.
To achieve that kind of explosive growth, Office Depot had to crack whole new markets. The company had always served a small-business clientele, the type of customer who would drop into a store for staples and Scotch tape. In 1993 only 17% of its sales were to large corporations. Begelman decided the time had come to ramp up his share of the big-ticket market. "I went on a shopping spree," he says, spending "hundreds of millions of dollars."
In 1993 and 1994, Office Depot acquired eight independent office-product dealers operating in 20 states, all serving big corporate customers. "I thought we would be able to leverage Office Depot's buying clout and reputation, and get this commercial business cranked up and rocking," he says. "I figured, How hard could it be?"
The answer: very hard. "This thing hit us like a brick wall," Begelman says. Almost immediately, he saw disappointing results. Office Depot wasn't oriented to the large-company purchasing agent. "I thought it would be a challenge that we could quickly overcome," he says. "Instead, it gave me a big headache."
The new acquisitions operated as semiautonomous fiefdoms with scant coordination. Begelman had expected an Office Depot big-business catalog to appear within one year. It took two.
"We were just working hard to hold on to existing customers," Begelman admits. He left Office Depot in 1995. At the time, sales to large companies accounted for 23% of the company's revenues.
Begelman's tenure as company president was successful by most measures. During the years he ran Office Depot, from 1991 to 1995, its revenues jumped from $625 million to $5.3 billion, and the number of stores increased from 173 to 501. But he had believed there was no such thing as bad growth, and now his regret over the way he orchestrated the expansion is almost palpable. "You must think carefully about what you're stepping into before you step into it," he says. "We were always behind the eight ball."
Today, Begelman has a hot new start-up, Music and Recording Superstore (MARS), a $200-million Fort Lauderdale-based music-products retailer with 21 stores in 10 states. And he has a new appreciation for the principle of moderation. In the future, he says, "I will be less inclined to acquire and more inclined to build from the bottom up." --Marc Ballon
Life after growth
THE CEO: Bob Cooney
THE COMPANY: Laser Storm Inc., a chain of laser-tag arenas based in Denver
THE BUY-IN: "In this market, it's eat or be eaten."
Bob Cooney was so set on growing Laser Storm into a national powerhouse that he took the company public in May 1996. All the experts--investment bankers, the press, even members of his CEO networking groups--said no company, large or small, could survive unless it grew as large as possible. "It certainly seemed like a good idea at the time," Cooney says. "We totally bought into that."
What he no longer buys into is the idea that all growth is good, no matter how you achieve it. When he took Laser Storm public, Cooney's plan was to acquire other amusement companies, including both suppliers and retail operations. Cooney says he saw an opportunity to consolidate the mom-and-pop industry.
Cooney thought he had no choice if he wanted Laser Storm to survive. "We're in a pretty small niche market, yet there are 12 to 13 other companies doing the same thing," he says. "We thought we needed to position ourselves for the future. There was a real fear that if we didn't do anything, in 10 years we'd fall by the wayside."
