Expensive Mistakes

The Most Expensive Mistakes

How one bad decision forced a $12 billion acquisition.

In 1980, one of the best consulting firms in modern America was approached by AT&T. At the time, AT&T was an absolute powerhouse. In market speak, it was a blue chip. Or a FANG. The same way we think about Apple or Google today is what AT&T was back then. They were unstoppable in the eyes of the general public.

They approached this consulting firm and had a question. They wanted them to forecast the number of cell phone users by the year 2000. That question asked back then is not very easy to answer. Hindsight is a fools game. A cell phone at the time looked like this:

It was a brick. It was a rock weighing in at 12 pounds. Maybe more? At the time, I’m not sure how you could have had the vision or imagination to see this turning into the iPhone or Android that’s relaxing in your pocket, bag, or desk today.

Perspective is a remarkable thing and it’s easy to forget where we came from and how quickly it happened. When AT&T commissioned this question, landlines were the dominant way of connection. A landline was life and AT&T was the king you had to go to. The first sight of a phone with no wires was peculiar and possibly a tad worrisome. It was the first arrow on fire that landed over the walls.

Image result for arrow game of thrones gif

To defend against this arrow, AT&T decided not to do the work themselves. Instead, they hired mercenaries. Arguably the best in town. They gave this consulting firm a simple yet this-could-make-us-or-break-us task. Nbd.

How many cell phone subscribers will there be in 20 years? And should AT&T be worried?

No one knows how long it took this consulting firm to find their answer. But the conclusion was presented.

It was nothing to worry about, they said.

AT&T dominated the landline and the trend suggested this was the course to stay on. The number of wireless cell phone users by the year 2000 would be around 900,000.

They said.

Data costs for a cell phone connection were enormous, cell phones were ridiculously heavy, and their battery life might get you one or two calls every charge. For the wireless phone to change everything it had to go through an immense cycle of change and affordability. There’s no way that will happen by the year 2000.

Today, it can be argued every adult human on Earth has a cell phone or at least a connection. In 2000, the number was 109 million and not 900,000 as predicted. As the market boomed for cell phones and wireless connections, AT&T was forced to acquire McCaw Cellular. They paid a cool $12 billion. It is one of the most expensive mistakes in history.

Deep in human nature is a sense of defensiveness. The desire to own something or the need to protect it until the end result. Perhaps it is a sense of being territorial even if it means to the downfall. It’s difficult to think differently or push further to open up to new lines of thought. Most want to hold on to what is their’s. The consulting firm told AT&T what they wanted to hear.

The other day I was on Twitter and a friend sent me an interesting tweet about Western Union. When the telephone was first getting started, Western Union was the main source of communication by way of telegram. The telegram! When the leaders of Western Union were asked about this, and how new technology like the phone could impact them, they responded fiercely:

“The idea is idiotic on the face of it. Furthermore, why would any person want to use this ungainly and impractical device when he can send a messenger to the telegraph office and have a clear written message sent to any large city in the United States?

The electricians of our company have developed all the significant improvements in the telegraph art to date, and we see no reason why a group of outsiders, with extravagant and impractical ideas, should be entertained, when they have not the slightest idea of the true problems involved.”

We all know how that turned out.

Expensive mistakes happen all the time. They come and go as more risk is taken on or most investments are pushed forward. There’s no easy way to avoid these mistakes, but just being incredibly receptive to change is the most important thing. Opening up to the possibilities, even the most absurd and futuristic. Maybe at the root of most mistakes is an abundance of dogmatism. And the only way to avoid that, is to seek out the most extreme events that go against what you believe in and then actually thinking they might indeed be true.

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Expensive Mistakes was originally published in Luchini In The Air on Medium, where people are continuing the conversation by highlighting and responding to this story.