Bankruptcy Case Studies | Part 3: Why Do Companies Go Bankrupt? ~Companies That Cannot Cut Their Losses Will Inevitably Collapse~

The problem was visible.
Yet, the failure to act became the fatal wound.

Why can't companies stop, even when they realize they are making a mistake?

Collapse does not begin suddenly.

There were warning signs,
and the failure to stop them led to the collapse.

Case Study 1: Skymark

Skymark Airlines Inc. (Airline)

Grew through a low-cost strategy.
However,

・Decision to introduce the large A380 aircraft
・Excessive investment
・Mismatch with demand

The strategy gradually became distorted.

As a result, cash flow worsened,
and they filed for Civil Rehabilitation in 2015.

Case Study 2: Yamaichi Securities

Yamaichi Securities Co., Ltd. (Securities company)

Grew as one of the big four securities firms.
However,

・Postponing massive losses
・Concealment of off-balance-sheet debt
・Organizational neglect of problems

The problems were left unaddressed for years.
As a result, they voluntarily closed in 1997.

I would like to ask the reader a question here.

Question 1

Which of these is the "essence of collapse"
common to both companies?

A. Failure in investment judgment
B. Lack of management ability
C. Postponing problems and inability to stop
D. Changes in market environment

Answer

It is "C".

Both of them
realized that "something was wrong."

However,
they turned a blind eye.
They could not stop.

This is the essence.

Supplementary note:

For those who chose A
→ It was a trigger, but not the essence.

For those who chose B
→ It is a structural problem, not an individual one.

For those who chose D
→ The environment is merely a trigger.

The essence is
"the inability to stop."

The Structure of Collapse

What these two companies have in common is

a "point of no return."

・Inability to cut losses

・Inability to stop decision-making
This accelerated the collapse.

Words of Sun Tzu

　Victorious warriors win first and then go to war　
　Create a state where you can win before fighting.

They

continued to fight
even when defeat was already visible.

That is why they were defeated.

I will ask the reader again.

Question 2

Which of
Sun Tzu's quotes

most accurately describes these two companies?
A. Know the enemy and know yourself, and you will fight a hundred battles without danger.
B. Victorious warriors win first and then go to war.
C. Just as water retains no constant shape, there are no constant conditions in warfare.D. In war, speed is more important than perfection.

Answer

"B" Victorious warriors win first and then go to war.

Originally,

・a decision to withdraw
・cutting losses

was necessary.
However, they could not do it.
This is the cause of their collapse.

In conclusion

Companies do not perish because of failure.

They perish because of "unstoppable failure."

Whether or not you can turn back.
That is what determines life or death.

Next Episode Preview

Next time is the series summary.

Bankruptcy Case Studies | Episode 4: Why Do Companies Go Bankrupt?
~The 3 Common Structures of Corporate Collapse~ (Summary Episode)

Sun Tzu's Art of War Series Table of Contents

Post Index: A table of contents for posts. You can find articles of interest here.