Blog | Entrepreneurship

Lessons on Better Business Systems from a $1.75 Billion Failure

Focus on the Rich Dad B-I Triangle as an entrepreneur and investor to achieve massive success

Summary

• Bed Bath and Beyond files for bankruptcy after over 50 years of business.

• Following the B-I triangle helps entrepreneurs focus on the right priorities when it comes to their business.

• Successful businesses focus on systems, not products.

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Bed Bath & Beyond. Maybe you’ve heard of it? Perhaps it rings a bell but you can’t place it? Maybe you’ve seen it on the news?

Sarcasm aside, Bed Bath & Beyond, once a home goods haven, went bankrupt in April of 2023 after hundreds of millions of dollars in loans and funding to delay their final financial fate. That’s right — hundreds of millions. In 2022, BBBY took out a $375 million loan, followed by $1 billion hedge fund financing (that never went through), before ultimately closing hundreds of stores after failing to raise $300 million from investors through a share sale.

How could you have missed it?

Why Bed Bath & Beyond went bankrupt

While there are several speculations as to why BBBY went bankrupt, the leading theory is that the failure fell on the shoulders of its leadership and the chronic disconnection to their customers.

As Forbes puts it:

“Legendary retailers fail in a predictable way. Their founders preside over rapid growth and market leadership. After the founders step back, aggressive rivals go after their customers and they lose market share.

They hire so-called professional CEOs from well-regarded rivals who bullheadedly apply what worked at their previous employer while skipping the crucially important step of listening to customers and giving them more of what they need than competitors do. That final failure sends the once-proud retailing icon into bankruptcy.”

Former Target Chief Merchandising Officer, Mark Tritton, was brought on as CEO, and his immediate strategy was to force the strategy of private label products — which worked at Target — onto a very different group of customers.

This strategy proved not only to be ineffective, but catastrophic. Tritton rescinded local store managers’ merchandising authority and forced them to discount branded goods on BBBY’s shelves to make way for his new strategy: replacing All-Clad cookware, OXO kitchen gadgets and other home goods alike, with private label items.

By the time Sue Gove took over in October of 2022, it was too late. Tritton’s strategy ultimately tanked BBBY’s revenue by 33% in November of 2022.

Forbes continues:

“In its bankruptcy filing, BBBY said at the end of November its total debt of $5.2 billion exceeded assets by $800 million. It owes money to ‘between 25,000 and 50,000’ creditors — Bank of New York Mellon ‘with a claim of $1.18 billion’ is its largest unsecured creditor.”

What could have helped — and maybe even saved Bed Bath & Beyond? Less focus on private labels and more focus on a better business system.

A better business system is not about product

It’s easy for people to get excited about an idea of a new product that they believe is truly innovative and worth investing in. The truth is, the world is full of great products.

These people also believe their product is the best idea out there, better than any other existing product on the market—not unlike the leaders at BBBY felt. This, they think, also makes it foolproof.

Here’s a hard fact served cold: only those in the E (employee) and S (self-employed) quadrant of the CASHFLOW Quadrant, where being the best or highest quality is important for success, think that having the best product is most important.

In the B (big business) and I (investor) quadrant, however, the most important thing is the system behind the product or idea. Case in point, most of us can cook a better hamburger than McDonald’s, but few of us can build a better business system.

Rich dad said, “The product is the least important piece to inspect when evaluating a business.”

The best business systems excel in all eight integrities of Rich Dad’s B-I Triangle

Rich dad believed that a truly successful business was built on systems and that the product didn’t have to be the best if the systems were world class. It still had to be good, just not the best. That is why he always placed Product in the smallest portion of the B-I Triangle, his model for building the most successful businesses.

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The B-I Triangle as a whole represents a strong system of systems, supported by a team with a leader, all working towards a common mission. It is made of eight vital components (or integrities), each of which are essential for success–the most important foundations being Mission, Leadership, and Team.

Cash flow always follows management

If any of the management functions of the B-I Triangle’s five internal levels (cash flow, communications, systems, legal, and product) are weak, the company will be weak. If you are personally having financial difficulty, or not having the excess cash flow you desire, you can often find the weak spots by analyzing each level. Once you identify your weakness, you may then want to consider turning it into your strength, or hiring someone else with that strength.

In the case of Bed Bath & Beyond, it’s obvious that Leadership’s vision for the future of BBBY was a major problem. Additionally, this may have led to exits of key talent, which is a weakness in Team. They’re spending money like drunken sailors, a weakness in Cash Flow, thus creating a breeding ground of underlying — and inevitable — problems in Legal and Systems.

Any one of these business system weaknesses would be enough to sink less-funded companies. All of them most likely led to such a lackluster launch for a highly touted product.

Some of the best investments and businesses are the ones you walk away from

If any of the five levels in the B-I Triangle are weak and the management is not prepared to strengthen them, it is best to walk away from the investment.

The digital age makes Rich Dad’s B-I Triangle available to everyone

Despite being “rescued” by Overstock, there are many lessons to learn from Bed Bath & Beyond’s colossal mistakes when it comes to your own business or a business you wish to start.

It has never been easier to access great wealth than in today’s day and age. In the Industrial Age, you needed millions of dollars to build a car factory. Today, with a used computer, some brainpower, a phone, and a little education in each of the eight integrities of the B-I Triangle, the world can be yours.

If you want to be a successful entrepreneur who builds successful businesses or invests in them, the entire B-I Triangle must be strong and interdependent. If it is, the businesses will grow and flourish.

The good news is that if you are a team player, you don’t have to be an expert at every level. Just become part of a winning team with a clear vision, a strong mission, and an iron stomach. Find that, and you’ll be well on your way to success.