Failure Forums

Learning from Failure… a collection of stories, insights and lessons learned.

After a “Failed Launch” in 2005 – P90X Fitness Program Earns Revenue of $700m

Inc. Magazine just did a great story “The 22nd Time is the Charm” on entrepreneurship, failure, perseverance, and finally success. When Beachbody first launched the P90X home fitness DVDs in 2005 the product was a huge failure: it was costing too much to make and the sales were dismal. By the end of that year the company’s revenues had sunk from $100m to $83m. With all of the production and marketing expenses involved in launching the product the per order costs were at roughly $250 (much of this due to sizable fixed costs and low sales volume) and they were only selling the DVDs for what they thought customers would be willing to pay at $120 per set – obviously not a sustainable business model.

Beachbody had been founded in 1998 as an infomercial / marketing company that sold DVD fitness programs and health supplements. A couple of their other products include the “Brazil Butt Lift” and “Hip Hop Abs” DVD fitness programs. While they were still making money from their other products the thought must have crossed their minds to pull the plug on this new initiative. Amidst this adversity the founders still had faith that there was a great opportunity with this new product. They continued to get their costs down and they continued to hone in their marketing campaign. In 2007, after 21 consecutive “failures” in finding the right marketing message, the 22nd version of their infomercial was the hit they were looking for!

By 2009 product sales were climbing and they were getting feedback that celebrities were promoting their product unsolicited – Sheryl Crow, Jennifer Aniston, Ashton Kutcher, and some of the Philadelphia Eagles players were all using P90X to get in shape and build their endurance. Although Beachbody is not a publicly traded company so we cannot verify their financials, they have stated that their P90X product has earned them over $700m in sales… a far cry from their “failed” product launch just seven years ago.

A few questions for thought:

  • How would the initial failure of P90X been received in your company?
  • Would you have continued to invest in a 22nd infomercial after two years of stagnant sales?
  • If this were a public company that had to report quarterly sales numbers would executives have been as patient?

A few factors seem to stand out from this great example of a long road to success:

  • The founders were confident that it was a great program and were willing to invest in making it succeed
  • The company had a track record with this type of product and they understood the critical drivers for success: the Product Costs and the Marketing Campaign
  • The company continued to take away what they had learned from their failures to improve their product offering – costs continued to come down and the infomercial continued to improve based on customer feedback

Want to be an ice cream entrepreneur? Get ready for the cold days ahead…

The Federal Small Business (SBA) association recently calculated their 2012 list of the business franchises that most frequently failed to repay their SBA loans. Blue MauMau, a blog focusing on the business of franchises in the United States, recently published the list as the Worst 25 Franchises to Buy with the Highest Failure Rates 2012 and 4 of the worst 25 were ice cream franchises: Carvel Ice Cream (56.41%), Marble Slab Creamery (43.66%), Cold Stone Creamery (41.93%), and MaggieMoo’s (39.39%).

SBA Loan Franchise Failure Rates 2012These percentages were calculated by the number of liquidations plus write offs and divided by the number of loans (liquidations + write offs / # total loans for that franchise) and any franchise that had less than 50 loans was eliminated to keep some of the smaller franchises from obscuring the results. These numbers are staggering if you think that the reason you are buying into a franchise is because you are buying into the expertise of the franchiser. Dairy Queen (a wholly owned subsidiary or Warren Buffett’s investment firm Berkshire Hathaway) by contrast had less than 10% of their franchises default on their SBA loans. It is important to note that these are only looking at loans that had the SBA backing. Most private banks will not share their statistics on business loan defaults so we are only looking at a subset of the total small business loan population.

Lesson: Some franchises carry a significantly higher risk of failure than others. If you are considering opening an ice cream shop franchise you may want to reexamine the accuracy of your financial models.

Being an entrepreneur (and to a lesser degree being an intrapreneur) is a risky business with an incredible amount of complexity that needs to be dealt with but the reality is that most new businesses will fail. The question is what do we do with that failure, how to we learn from our failure and those of others to give us some insight into our probability of future success? The goal of the Failure Forums is to help raise awareness that failure is a natural outcome from these risk taking endeavors (entrepreneurship and innovation) and to help organizations of all shapes and sizes (big companies, small companies, non-profits, and even governmental organizations) learn how to build the processes and support structures necessary sustain when failure does happen. What did we do? What did we learn? And, what would we do differently?

Apple Pulls the Plug on Ping

Even the mighty Apple misses the mark on occasion. John Paczkowski (@JohnPaczkowski) of the tech blog All Things Digital cited sources close to the situation as suggesting that Ping will be gone with the next major release of iTunes in the Fall. The plug is being pulled on the “test” after less than two years for Apple’s social “music” network when it debuted on September 1st, 2010. Instead Apple has stated that it will focus on partnerships with Twitter and Facebook to better integrate into their dominant social webs.

Originally, just hours after the service launched it was heralded as a success with Apple sending out a press release stating that they had registered over one million Ping users in the first 48 hours. But not everything seemed right and soon the questions came flooding in about fake accounts being created, including singer-songwriter Ben Folds who claimed that an account had been created in his name but he had no idea who had created it. At the time Apple had also confessed to a major blunder with their Facebook integration. The integration between Ping and Facebook had originally worked but Apple had failed to secure an agreement before they launched Ping. Job’s cited the fact that Facebook wanted onerous terms that Apple could not agree with and so in response Facebook denied Apple’s ability to use the Facebook API with Ping.

The solution that Ping was trying to deliver was to help customers search for new music based on what their friends had bought on iTunes. But Apple didn’t know who your friends were based on your iTunes account so they were looking to leverage that information from your Facebook account. Where is all broke down was that Apple failed to have finalized an agreement with Facebook and without it their product didn’t solve anything for the customer. Hence why Doug Gross (@Doug_Gross) from CNN included Ping is his list of “10 Biggest Tech Fails of 2010


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