EXECUTIVE DECISIONS

They may be among the world’s most successful businesspeople, but that doesn’t mean they can’t make really stupid decisions, just like the rest of us. Here are some classics.

SHOULD WE SIGN THEM UP?

Executives: Mike Smith and Dick Rowe, executives in charge of evaluating new talent for the London office of Decca Records

Background: On December 13, 1961, Mike Smith traveled to Liverpool, England, to watch a local rock ’n’ roll band perform. He decided they had talent, and invited them to an audition on New Year’s Day 1962. The group made the trip to London and spent two hours playing 15 songs at the Decca studios. Then they went home and waited for an answer.

They waited for weeks.

Decision: Finally, Rowe told the band’s manager that the label wasn’t interested. Why not? Apparently, they sounded too much like a popular group called the Shadows. In one of the most famous of all rejection lines, he said: “Not to mince words, Mr. Epstein, but we don’t like your boys’ sound. Groups are out; four-piece groups with guitars particularly are finished.”

Impact: The group, of course, was the Beatles. They eventually signed with EMI Records, started a trend back to guitar bands, and ultimately became the most popular rock band of all time. Ironically, within two years, EMI’s production facilities became so stretched that Decca helped them out in a reciprocal arrangement, to cope with the unprecedented demand for Beatles records.

SHOULD WE BUY THAT NEW SEARCH ENGINE?

Executive: Bob Bell, CEO of Excite

Background: In 1999, the search engine Excite was one of Silicon Valley’s richest companies. Worth an estimated $35 billion, Bell was buying up smaller search engines and other companies at tens to hundreds of million dollars each. So when two Stanford University graduate students, Larry Page and Sergey Brin, asked Bell for a paltry $1 million for their fledgling search engine (which featured a fancy algorithm that sped up search times), they figured it was an easy sell. The two students just wanted to make some money and then get back to their studies.

Decision: Bell told Page and Brin that their price was too steep, so he declined. (They also offered to sell their search engine to Yahoo and Alta Vista, but those companies weren’t interested, either.) Meanwhile, one of Excite’s venture capitalists, Vinod Khosla, negotiated with Page and Brin, and got the price down to $750,000. When Khosla told Bell the good news, Bell still said no and threw him out of his office. So Page and Brin decided to stick with their fledgling company, which quickly became one of Excite’s leading competitors.

Impact: Today, when you want to look something up online, you don’t say, “I’ll Excite that,” you say, “I’ll Google that.”

HOW DO WE COME UP WITH SOME QUICK CASH?

Executives: 20th Century Fox’s TV division (pre-Murdoch)

Background: No one at Fox expected much from M*A*S*H when the Korean War sitcom debuted on CBS in 1972. The executives simply wanted to make a cheap series by using the M*A*S*H movie set again—so it was a surprise when it became Fox’s only hit show. A few years later, the company was hard up for cash. When M*A*S*H’s ratings started to slip after two of its stars left, Fox execs panicked.

Decision: They decided to raise cash by selling the syndication rights to the first seven seasons of M*A*S*H on a futures basis: Local TV stations could pay in 1975 for shows they couldn’t broadcast until October 1979—four years away. Fox made no guarantees that the show would still be popular; the $13,000 per episode was nonrefundable. But enough local stations took the deal so that Fox made $25 million. They celebrated…

Impact: …but prematurely. When M*A*S*H finally aired in syndication in 1979, it was one of the most popular shows on TV (it ranked #3 that year). It later became one of the most successful syndicated shows ever, second only to I Love Lucy. Each of the original 168 episodes grossed over $1 million for local TV stations. Fox got nothing.

SHOULD WE BUY THIS INVENTION?

Executive: William Orton, president of the Western Union Telegraph Company

Background: In 1876, Western Union had a monopoly on the telegraph, the world’s most advanced communications technology. This made it one of America’s richest and most powerful companies, worth $41 million. So when Gardiner Greene Hubbard, a wealthy Bostonian, approached Orton with an offer to sell the patent for a new invention Hubbard had helped to fund, Orton treated it as a joke. Hubbard was asking for the unheard-of sum of $100,000.

Decision: Orton bypassed Hubbard and drafted a response directly to the inventor. “Mr. Bell,” he wrote, “after careful consideration of your invention, while it is a very interesting novelty, we have come to the conclusion that it has no commercial possibilities…. What use could this company make of an electrical toy?”

Impact: The invention, the telephone, would have been perfect for Western Union. The company had a nationwide network of telegraph wires in place, and the inventor, 29-year-old Alexander Graham Bell, had shown that his telephones worked quite well on telegraph lines. All the company had to do was hook telephones up to its existing lines and it would have had the world’s first nationwide telephone network in a matter of months.

Instead, Bell kept the patent and in a few decades his telephone company, now called American Telephone and Telegraph (AT&T), had become the largest corporation in America. The patent became the most valuable patent ever, its worth dwarfing the $100,000 Orton could have paid for it.

Ironically, less than two years after turning Bell down, Orton realized the magnitude of his mistake and spent millions of dollars challenging Bell’s patents while attempting to build his own telephone network (which he was ultimately forced to hand over to Bell). Instead of going down in history as one of the architects of the telephone age, he is instead remembered for having made one of the worst decisions in American business history.

South African fad: Some boys in Cape Town have their upper front teeth extracted to look cool.