During a hallway discussion, the topic of bad business decisions came up. I was asked to relate the dumbest business decision that I had ever seen. This one was very easy. Because I do not wish to receive hate mail, I will not mention the name of the company who made this decision. Let’s call them Brand X.
The story starts five years ago when the fiber-to-the-home business was still in its infancy. Today, millions of units per year of fiber-to-the-home products are being shipped, but back then maybe 100K per year were being shipped world-wide. There is a part that is used on most of these units. Brand X is a company a few blocks from where I work and they made an excellent version of this part. Unfortunately, they are focused on shipping to the military and aerospace market and my firm is commercial. I went over to their facility and had a discussion with them about their part and I ended up using their part in our design. The part was a little clunky in a commercial application because military RF systems typically operate at 50 Ω and fiber-to-the-home systems run at 75 Ω. I told the management of Brand X that I will use their part for now, but that I need them to eventually make a 75 Ω version of the part. Their engineers told me that the change was minor and could be done by one person over a couple of months. We agreed on a unit price of $5.
I ended up buying large numbers of Brand X parts, but eventually I really needed to get a 75 Ω version of this part. I made another trip over to Brand X and asked them again to make a 75 Ω version of this part. Their response was interesting. They wanted me to pay $50K to cover their R&D costs. I was buying about $50K worth of product every few months at that point. I told them that I would not cover their R&D costs. Besides my volume, they could sell millions of units to other people in the fiber-to-the-home space besides me. I could easily go to other companies who would make the part for me with no up-front costs. The local company told me that their system was focused on the military and aerospace markets where R&D costs are paid for by the customers. Their system could not deal with investing money in order to make more money. I was floored.
To make a long story short, I discussed this with the Brand X management numerous times and they insisted that they could not make the change without up-front money. I ended up talking to an Australian company who developed a 75 Ω version of the part for nothing and I ended up using their part. I dropped Brand X and will never use them again. This particular part has now become standard in the industry and millions of these units are now used every year in the fiber-to-the-home market. My company alone purchases over 100K units per year. The local firm continues to make small quantities for the military market. The best thing for their company and the local community would have been to make this simple change, but they could not see further than their current market. I hope that I never develop that level of nearsightedness.