The Ten Commandments for Business Failure - Don Keough [33]
Now I grew up in a business where you bottle it in the morning and sell it in the afternoon and in a lot of places there is no other competition. Seems to me that’s the kind of business we want to be in!
Mr. Woodruff struck a chord with Roberto and me. Despite what all the consultants had said about how good this business was, and despite the fact that we had acquired about 11 percent of the total U.S. wine business—a not insignificant share—we decided to take a closer look at the business. So we met with the managers of the Wine Spectrum in early 1981 shortly after we had taken our assignments to lead the company.
We asked wine executives to make the assumption that every business decision they would make between then and 1990 would be perfect. We asked those executives to use volume and profit projections that were generous but rational and report what the expected return on invested capital would be by 1990. When we received that information the decision would be made on whether to build the business or get out of it. We assured the executives that they would have a place in the company should we sell the wine business.
Every one of those wine executives concluded that with the very best possible results, the return on capital would be equal to or less than our cost of capital. That gave us pause. Did we really want to be in this business?
But what could we do with it?
It always pays to be lucky and The Coca-Cola Company has been lucky over the years. Shortly after we concluded that we didn’t really know how we could make a decent return in the wine business, a call came from Seagram’s. They were interested in looking at our Wine Spectrum. And “reluctantly” we negotiated a deal that worked out very nicely for both parties.
Take your eyes off the bull and you will fail. I did.
When the management of Coca-Cola USA came to corporate leadership with a New Coke proposal, we were persuaded to take a serious look. This was a case where Roberto and I allowed ourselves to be convinced by consultants and experts that the huge number of taste tests conducted by the U.S. market research group provided us with a valid basis to make the move to an entirely new product formulation. After weeks of reviews, debate, and discussion, Roberto and I supported the project. They had convinced us that changing the product would be a brilliant competitive move.
Out it came. More testing. More experts. The company had focus groups and test markets and random samples. Everything clearly pointed to New Coke as always the winner. Roberto’s and my gut instincts were not to mess with this icon of America’s heritage, but the expert evidence was overwhelming. And the decision-making process began to be an exercise in what I referred to before as group wishing. It becomes, like it or not, a team decision because the idea is so exciting and seems so right to so many. New Coke was gathering so much momentum that no one on the team wanted to be the one to rain on the parade. Despite reservations, Roberto and I also were caught up in the gathering tidal wave propelling this dramatic change. We bought into the project 100 percent. For those of us who were part of this seismic event, the emotionally charged anticipation was palpable.
The company rolled out New Coke across the nation in April and May of 1985. To feed the frenzy, we put marching bands and balloons and everything else in our promotional bag of tricks behind the launch of New Coke.
It created quite a stir. In the historical scope of the world, it doesn’t seem all that important, but at the time it was