How to Profit From Other Company’s Mistakes

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By Michael Sterling

A smart business owner will learn from their mistakes, but a successful entrepreneur will learn from other company’s mistakes – including their rivals. In the technological age we are living in, there are so many opportunities to fail. Huge failures are just waiting to be made somewhere or other.

Everyone talks about learning from your mistakes and how failure is just an opportunity to learn, but if you’re not stupid and try to be observant, you can learn a tremendous amount of information with room for little mistakes.

Watch the Timing

When big corporations risk billions of dollars with the smallest of decisions, it makes it much more crucial to be observant on how they do their business. We must keep up with strategies to stay one step behind to possibly succeed in the things they don’t.

The Wall Street Journal blogged about a situation that happened to American Airlines in 2011. The airline’s parent, AMR Corp, sought creditor protection with over $4 billion cash in it’s coffers and a nearly $30 billion debt load to reconstruct. The decision helped to preserve value for creditors, having considered the lessons of the global financial crisis.

They sought court protection while they still had ample liquidity (or easy cash-outs) and wasn’t forced to seek out financing. Several years before however, AMR watched it’s rivals go through similar bankruptcy restructurings and learned appropriate timing of when to file for bankruptcy.

Then  in 2005, the U.S. Bankruptcy Code changed, limiting the hold a company has over their Chapter 11 (bankruptcy) cases.

The result was that companies would start out bankruptcy with a 120 day period that can be extended up to 18 months. By waiting and watching other companies slip down the path of creditor protection, AMR gave themselves a year and a half of time to reconstruct their strategy, henceforth saving the investors’ cash.

The lesson? Keep an eye out for public corporations with a track record of good timing. This means that the men behind the brand know how to play the game. It’s obvious in the stock market. Last year, American Airlines (AMR) was selling at 40 cents a share. Today they are selling for $4!

Don’t Forget About the Costs

Most business owners focus on their product being low cost and high quality. Sometimes when you concentrate on the wrong things, you forget to do the mathematics and you are left in the hole. Such was the case of Zipcar. When Robin Chase, the founder, started the company in 2000, she quickly realized that she did the calculations wrong.

Luckily, the company had a vast amount of client loyalty so most of her customers gave in when she raised her rates. Zipcar went public in 2011  – what can we learn from this as investors and businesses owners? To keep the attention on the cash flow. This past March, Zipcar was bought by Avis Budget Group for $500 million cash.

Pay attention to companies that give fair quotes for services, not ones who overcharge for bogus quality. It’s better to think FAIR rather than CHEAP, this means that a company has it’s eyes on the ball which is always important – especially when they are a public company and investors are depending on their returns.

Take this knowledge when looking for companies that are repeating their same behavior. As an investor, you should understand the difference between a good deal and a good sale. Both can be misinterpreted when predicting a stock market future.

Apply the Information to Your Own Company

As your business continues to grow, start studying other company’s mistakes – you will soon realize that this is valuable information. Don’t fall into the trap of repeating history. The most successful of companies last because they consider ALL areas: marketing, customer service, accounting, investments, partnerships, etc. Don’t be selfish. The customers are what make success.

If all areas come together with the goal of growing and creating the best product with the best quality and the best price, it is only a matter of time for the returns to grow. It’s not rocket science if you think about it. A lot of times, we get caught up reading these “How To” books that we forget the basic rule of business which is to create a loyal and quality brand.