252: Built to Fail, The Rise and Fall of Blockbuster and How Alan Payne Outlasted It All

This week’s Misfit Entrepreneur Alan Payne. When I say Blockbuster Video, what comes to mind? If you are younger, you may be saying “What’s Blockbuster video?” If you were around through the spectacular rise and fall of Blockbuster, you are probably thinking something along the lines of colossal failure. At one point, Blockbuster was the pinnacle of entertainment where everyone went on a weekend evening to rent a movie.

And most think that the downfall happened because of Netflix and streaming and the company not adapting to the new world of content. While those things had an impact, the real reasons started much earlier and Alan Payne was there. In fact, Alan was one of the most successful franchisees and his stores outlasted Blockbuster’s bankruptcy by over a decade. They did so, because Alan realized the company was Built to Fail and decided to run things differently drawing on his storied history of success in business. In fact, his book is called Built to Fail, which tells the story and lessons learned from the failure of Blockbuster as well as what Alan has learned on how to succeed in business over his 30+ year career.

I’ve asked him to come on the show and share his story, his experience, and wisdom and how you can use it succeed where others have failed.

Book: Built To Fail by Alan Payne

Alan didn’t come to own a business in the traditional way. He was working for a grocery company called HEB in Texas in the 80’s. HEB is regarded as one of the best and most well-run companies in the nation. At the time, they were looking to add video rental into their stores as it was becoming almost an expectation of customers. But HEB had decided to take things further. Blockbuster was just starting out in the mid 80’s and because HEB owned so much real estate, Blockbuster wanted to lease space from them. HEB decided to do it themselves and have their own brand called Video Central. They tapped Alan to lead it.

They opened the first Video Central store right across the street from a Blockbuster. It was the first video store run by a mature, capitalized company with a massive track record of success. Video Central was very success against Blockbuster doing 3x the sales of an average Blockbuster. Alan grew the business to 35 stores and then HEB decided to sell it to focus on the grocery business. Alan left with the stores and joined a Blockbuster franchise group with stores from Alaska to Texas.

Within a few years, in 2000, he got the opportunity to buy the stores and did so running them for another 18 years outlasting Blockbuster by almost a decade.

All of this was due to using a business model that he developed at HEB.

The reason he wrote the book was that what he saw from 1993 to ultimate demise of Blockbuster was frustrating as it could have been avoided.

What really killed Blockbuster? Why was it built to fail?

• At the 8 min mark, Alan talks about the early days of Blockbuster success, but after the initial entrepreneur who drove it to an $8 billion valuation left, how it cratered because of terrible leadership.
• The company was so obsessed with growth, they never took much of an interest in being really good at what they did and as such got outdone by Netflix, Redbox, and others.

What did you do differently that allowed you to outlast and survive and thrive where Blockbuster didn’t?

• They were obsessed with being a little bit better every day.
• They looked at things like a business of abundance and had better availability and selection than anyone else.
• Alan committed in his stores to have more inventory, so his stores did not run out of titles as easily.
• They also tracked and matched demand better than Blockbuster.

At the 16 min mark, Alan talks about how Netflix and Redbox came to be and how Blockbuster missed out because of complacency when it was right there for the taking for them.

• Netflix beat Blockbuster by focusing on movies (90%) that were older and that people still loved – not new releases.
• They then tracked the data created profiles of customers to match up their interest and market the movies that fit them and their profile.
• Complacency and apathy internally killed Blockbuster.
• Blockbuster also took a market share hit from Hollywood video in the later 90’s and then Netflix came along, then Redbox, etc. And with Blockbuster not willing to change, the end was inevitable.

What were lessons learned from HEB on how to run a great business?

• Attitude. “We will be the best, period. One can of corn sold at a competitor down the street is one too many.”
• The service and dedication to giving clients the best deal.
• HEB had much more advanced systems for tracking what was happening in stores. Blockbuster was archaic.
• The HEB experience is an X-Factor. It’s an obsessive commitment to excellence.

You covered several important lessons in Built to Fail, share those with us…

• Clearly define your company’s purpose and mission. What is your purpose in your community, in society? You have a responsibility to be the best.
• Identify what really drives your business and pursue it relentlessly. Book: Measure What Matters. You have to work hard in the right areas.
• Respect and learn from your competitors. “Our competitors will accept failure as an inevitable result..” There is no way we will let them do it better than us.
• If you are going to do it, be the best at it. Don’t “get bigger at it,” get better at it.”
• In difficult times, rely on fundamentals to survive.
• Don’t just talk about the future, plan for it.
• Great companies create the future, they don’t wait for it.

These lessons/principles are what Alan applied to his business to make it so successful. Talk about when you finally had to close your stores and any lessons learned…

• It’s important to learn when it is time to throw in the towel.
• Blockbuster filed bankruptcy in 2010 and Alan had not even closed a store.
• But the brand got beat up through the bankruptcy and was tarnished.
• It was an uphill battle, but sales continued to slow and erode.
• Alan ran it profitably for several more years while closing and consolidating stores.
• Alan made sure to take care of all the employees to the very end and did keeping all salaries intact, etc. ​

Any other advice?

• It is fun to continuously get better. That is the challenge of running the business, the fun part – how do we get better tomorrow?
• It is the motivating factor.

 

Best Quote: It is fun to continuously get better. That is the challenge of running the business, the fun part, constantly asking – how do we get better tomorrow?

 

Alan's Misfit 3:

1. Have a healthy skepticism of people in power. Respect them but be willing to challenge them in a healthy way.
2. Create the future. Don’t follow, lead. Great sustainable companies create the future.
3. Tap into the compound rate of return from continuous improvement getting a little bit better every day.

 

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