Chapter 10. Repositioning a Business

The Point: All organizations, inside and outside of sports, deal with the ebbs and flows of the business cycle. Executives must be prepared to deal with the pressing issues that will determine the extent to which they can continue to thrive or even just stay alive during times of uncertainty. Great business leaders invest in and protect the organization on an ongoing basis, and realize that if they consistently refine the business they might not be faced with having to totally reposition it.

We've all been there before, or at the very least, thought our businesses (and careers) were there. "There" is teetering on the brink, needing a makeover of some sort to revitalize the organization in an effort to improve employee morale, instill confidence in vendors, and protect the company's stock price.

Businesses of all sizes, regardless of the industry they are in or the products or services they sell, encounter downturns that require them to reposition or reinvent themselves. This need to reposition can result from changes in economic conditions, consumer preferences, legislation, the competitive landscape, or a myriad other reasons such as management complacency.

Nike chairman Phil Knight believes that the footwear industry cycle lasts about seven years, and forces Nike to periodically reinvent itself and reawaken customers with new product lines supported by creative marketing and advertising campaigns.

Back in the 1980s, Nike relinquished its industry lead to Reebok after Nike decided that it would not immediately follow Reebok's entrance into the aerobic shoe market a market driven by consumers' desire for fashionable, stylish shoes. Nike's unwillingness to develop an aerobic shoe enabled Reebok to overtake Nike by marketing to women who ultimately were responsible for 75 percent of company sales.

A decade later, consumers preferred performance to style and fashion. Nike, with its superstar spokespeople and glitzy ad campaigns, reemerged as the industry leader by positioning itself as the manufacturer of authentic shoes worn by athletes.

By 2000, both Nike and Reebok found themselves competing with new or rejuvenated industry players, including And 1, Puma, and Pony; upstarts that set out to carve market share away from the industry behemoths.

And 1 did so by tapping into the inner-city communities, marketing to hard-core hoopsters with smaller disposable incomes. It was long thought that those living in the inner city didn't have the money to spend on expensive basketball shoes. However, as it has turned out, many spend their disposable incomes on basketball-related items, including shoes.

And 1 gained an edge by hiring controversial New York Knicks forward Latrell Sprewell, infamous for choking then Golden State Warriors coach P. J. Carlesimo. Further, the company didn't hesitate going after Rafer Alston, the streetballer who didn't even start in the NBA, but was well known as an inner-city playground legend. In 2002, And 1 even named a shoe after Alston the "Skip to My Lou's." For And 1, Alston authenticated its product and provided the company a "real" marketing platform. Soon, Nike came up with its Freestyle campaign to show that it too was "true to the street," and Reebok signed Allen Iverson to a lifetime contract to authenticate its urban line.

Puma, founded in 1924, and primarily known worldwide for its connection to soccer, as well as track and field, was also making inroads in the United States at least on the apparel side of things, as it became the jersey provider to 13 NFL teams. The company lucked out when the St. Louis Rams and Tennessee Titans, both outfitted by Puma, played each other in the 1999 Super Bowl. Unlike And 1, Puma decided to rely on the association fans had with their favorite teams to help position the company as an industry player. Two years later, Puma's NFL plan went down the drain when Reebok agreed to a 10-year, $250 million deal to outfit all the league's teams. This development led Puma to return its focus to soccer.

After more than a decade of inactivity, the Pony brand was bought by a company called The Firm. Hoping to revive the Pony brand name following the footwear and apparel company's bankruptcy, The Firm announced in 2001 that it would take an "antimarketing" approach to attract its targeted audience of young hipsters. To accomplish this, Pony outfitted rock bands, including Limp Bizkit and KoRn, in an effort to market its footwear and apparel as "cool" and "hip" among its core audience. Nike signed saxophonist Mike Phillips to wear its Jordan brand and Reebok signed artists including Scarface and Shakira.

Pony returned to the sports world in 2002 by introducing an "antimarketing" campaign utilizing rebellious sports legends, individuals whose athletic prowess was worthy of the hall of fame, but due to being blackballed or banned from their respective sports, they were never enshrined. The campaign included Jack Tatum of the Oakland Raiders and Pete Rose of the Cincinnati Reds, who was banned from baseball in 1989 for gambling on sporting events.

How will Nike and Reebok respond to these changes in the competitive landscape, as well as ongoing shifts in consumer preferences? How would a merchant who owns a single shoe store in the local shopping mall reawaken his customers after NikeTown becomes an anchor tenant?

Whereas Nike was able to regain it market leadership position, Atari was not. Atari, the once-dominant producer of video game consoles (the industry's version of hardware), not only lost market share but also eventually went out of business due to its inability to adapt to, and take advantage of, the latest technological innovations.

Atari dominated the early video game marketplace. The Atari VCS 2600 launched in December 1977, selling for $200 to $250. In five years, the brand which was acquired by Warner Communications for $28 million in 1976 had generated $5 billion in sales. Atari was able to hold off early challengers like Colecovision and Intellivision thanks to the success of games (the industry's version of software) like Pong and Pac-Man, as well as the very first video games licensed from major motion pictures, E.T. and Raiders of the Lost Ark.

However, when the video game market temporarily declined Atari reportedly lost $2 million a day throughout 1983 it became apparent that the company had not positioned itself for future success by recognizing the industry's business cycle and allocating resources appropriately to ensure that any downturn would be minimal.

Eventually, Atari was overtaken by a Japanese company called Nintendo, which developed Atari's popular Donkey Kong game and was creating games like Super Mario Brothers and the Legend of Zelda. Another competitor, Sega armed with its key property Sonic the Hedgehog also entered the market in the mid-1980s to challenge Atari.

However, it turned out that Nintendo and Sega would only be battling each other. In 1989, when Nintendo debuted its handheld device, known as Gameboy, Atari responded with its Atari Lynx, the first handheld video game system to be in color. For a variety of reasons, including the fact that to a new generation of kids the Atari brand name meant little, sales of the Lynx were minimal.

Four years later, after being acquired by Time Warner, Atari outpaced another newcomer (the Sony Playstation) to the market when it introduced the Jaguar, the world's first 64-bit computer system. Still lacking an authentic brand in the eyes of its critical demographic, sales of the Jaguar lagged and the video game system proved to be the last Atari ever produced.

In the 1990s, Nintendo and Sega continued to battle for the top position, matching each other's technological progress and selling consoles by turning proprietary games into franchises. Both did so by turning properties, including Super Mario Brothers and Sonic the Hedgehog, into TV shows or licensing the games' key images to stuffed animal and clothing manufacturers.

The video game business remains one of the most volatile in the world. Companies want to produce both the console (hardware) and the games (software). But the console is usually such a money loser that the games have to sell very well for today's companies to show a net gain.

In 2001, Sega announced it was dropping out of the console business and would just make games due to cost concerns. Today, Nintendo and Sony are now being challenged by Microsoft, which entered the video game console and games business in 2001 with the launch of its state-of-the-art system, the Xbox.

In professional sports, business cycles are also significantly impacted by the manner in which sports leagues are organized and run. Similarities might exist between sports and more traditional businesses, but the structure of professional sports serves to change both the depth and the length of industry cycles.

Sports also maintains a cherished spot in American culture. The connection that generations of fans have made with sports is passionate and runs far deeper than any other industry. Consequently, it enjoys a cultural distinctiveness and, more often than not, gives sports the upper hand in negotiations, often resulting in teams' ability to optimize their business cycles.

Turnarounds in the NFL can happen more quickly than in the other major sports leagues because the league has a hard salary cap, which provides the NFL with greater parity among its teams. In fact, from 1998 to 2002, seven different teams made it to the Super Bowl.

Just because sports enjoys a virtual monopoly in the market, this does not mean that business principles from the sports world are not transferable to customary business settings. Because industry leadership positions often change more frequently in the NFL than in the traditional business world (imagine if the software industry had a reverse-order entry draft for software engineers whereby the least competitive firms had their pick of the top graduates every year), considering how an NFL team approaches and deals with its business cycle is a worthwhile activity. When discussing the concept of repositioning a business against the favorable backdrop enjoyed by sports, there might be no better example than the Dallas Cowboys.

In recent years, the team has been the butt of one of the oldest and most recycled sports jokes: What do you call 53 men sitting around watching the Super Bowl on TV? That's right, none other than the Dallas Cowboys.

Dubbed "America's Team," the Cowboys have been required to turn their business around twice over the last 15 years. Presently in the midst of what the team hopes will be its second turnaround, the Cowboys' budding revitalization is being met with great scrutiny and, at times, even greater success.