In the early 1980s, James McCann bought a company that owned the phone number 1-800-Flowers. He figured he could parlay that phone number into a memorable brand.
But McCann pounced on the deal without thoroughly investigating the seller or analyzing the financial details of the transaction. Soon after completing the purchase, he realized his mistake.
He was shocked to discover that the company he had just bought was over $7 million in debt. Now that he was its owner, he had assumed the huge debt.
“When I was examining the company in 1983 I didn’t know how to do due diligence,” McCann later admitted.
Unwilling to succumb to defeat, McCann responded with a fresh determination to succeed. He rallied his small band of employees to adopt a fighting mentality.
“Look, we’ve made a mistake,” he told them. “Now to pay off our debts, we’ll just have to expand our plans, play on a bigger stage and be successful sooner.”
He didn’t know it at the time, but McCann would become a pioneer in online sales. Twenty years later, McCann’s company generated $912 million in revenue. To this day, however, McCann views his failure to do due diligence as his biggest business mistake.
When evaluating a major financial transaction, enlist experts to help you assess risk and reward. Make sure you understand the complexities of the deal—and possible adverse scenarios—before you proceed.
— Adapted from WhenGoes Wrong, Birgit Schyns and Tiffany Hansbrough, Information Age Publishing.