Fight off overconfidence or go bust

As CEO of Blockbuster in 2004, John Antioco headed a retail giant. The $6 billion video rental chain earned 60% profit margins with 60,000 employees. But six years later, it went bankrupt.

What happened?

In the early 2000s, Blockbuster’s customers repeatedly complained about soaring late fees and the stores’ emphasis on hyping the latest movies while offering a poor selection of oldies. But Antioco and his team dismissed the criticism, figuring that they had hit on a winning formula.

Then a formidable competitor emerged: Netflix. It wooed Blockbuster’s disgruntled shoppers with home delivery and no late fees.

Antioco knew of Netflix, but didn’t seem overly concerned. Blockbuster’s margins were far higher than Netflix, and the startup’s growing market share didn’t pose enough of a threat to worry Antioco.

Soon enough, however, Blockbuster faced a pivotal choice: It could compete online with Netflix (a disruptive and risky endeavor) or cling to the status quo and hope to beat back Netflix over time. It chose the latter.

Had Antioco made a better effort to understand his customers, he might have chosen a different strategy. But refusing to innovate—and staking Blockbuster’s continued survival on a dying business model—doomed the company to extinction.

Later on, Antioco acknowledged that he viewed Netflix at first as a niche player. But he defended his leadership by arguing that, as Netflix grew, he invested in an online platform and ended late fees.

But as Harvard Business Review concluded, “The mildest application of a different perspective—stopping and considering what the world looked like to Netflix, or even what the world looked like to Blockbuster’s customers—would have revealed” that Blockbuster needed to fight Netflix with full force or go bust.

— Adapted from Driven By Difference, David Livermore, AMACOM.