What CEOs Can Learn from Borders’ Predicament

The cycle repeats itself — again! Bob Donnelly outlines the mistakes that destroyed Borders and offers an interesting solution.

“A successful business for the long term.”

How often have we heard the same tune? Maybe it should be etched on the virtual tombstone of all the other brands that never saw the long term.

A brand has a life just like a person, and when it’s over – it’s over!

Borders began in 1971 as the entrepreneurial idea of the Borders brothers – Louis and Thomas Borders. Their idea at the time was to use computers to automate independent bookstores.

In true entrepreneurial fashion after twenty years the brothers cashed in their sweat equity to the tune of $125 million when they sold their company to Kmart. Kmart? Yes, Kmart had bought Waldenbooks, so in typical bureaucratic fashion management bought Borders to add customers to their existing book business.

However, at that time Barnes & Noble and other book chains were expanding, and Kmart missed the trend. Kmart was consumed over the next few years with what turned out to be an unsuccessful plan to exploit the Borders and Waldenbooks brands.

In 1995, Kmart, in trouble themselves by then, gave up on the book business and spun off Borders. The Walden Books brand also evaporated somewhere along the way, disappearing into the bowels of Borders.

By then their major competitors, primarily Barnes & Noble, Wal-Mart and other discounters, had far outpaced Borders in market share and prime locations. Amazon had also already launched their online book business that put Borders further behind the technology curve.

In 2001, realizing their deteriorating position, Borders management entered into an ill-fated agreement with Amazon to fill orders from Borders.com for a percentage of the sales. When that occurred, I along with industry experts, wondered “how could this possibly work?” Partnering with a competitor who didn’t want competitors? Jeff Besos must have enjoyed that, too!

The deal with Amazon ended in 2008. At this stage in the decline of the Borders brand, the handwriting was on the wall with the increasing dominance of Amazon, Wal-Mart and the growth of e-books. Borders no longer had a viable value proposition.

There is an old marketing maxim – if you are not number 1 or 2 – you have lost the battle for the customer’s mind and are on the slippery slope to irrelevance.

However, true to form in the final stages of decline, the revolving door of CEOs began and the company has had three different CEOs in the last three years.

Question: What was each one of these CEOs thinking? And more importantly, what is the current CEO, Mike Edwards, thinking?

Customers are gone, 200 stores and 6,000 employees are gone, shareholder value is gone ($41.75 share price in 1998 compared to $.23 today), suppliers are stuck with unpaid bills and the market has moved on.

How can Mike Edwards claim that he can have a successful business for the long term?

Who studies the repetitive history of brands that slide toward oblivion? Maybe there should be a brand war college for CEOs like there is a war college for military leaders.

E-mail me: [email protected]

Bob Donnelly writes the Entrepreneurial CEO column for Chief Executive. In his years of experience as an educator, consultant and a CEO himself, he has witnessed countless successful firms morph into bureaucratic also-rans as a result of one CEO after another abdicating his responsibility to sustain the competitive advantage. Complacency in business is just as dangerous as in life. He maintains that “if customers get to the future” before you do, they will leave you behind.


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