Entrepreneurial Lessons Learned: Twinkie, Twinkie, Little Cake How I Wonder What’s Your Fate


As the song goes the bankruptcy of the Hostess Brands, Inc. brings to mind how many companies today rest on their laurels. Many companies have forgotten how to compete because rapid growth has gotten in the way. Kalson (2012) noted how the Hostess company blamed the company’s problems on its unions and dispelled the idea bad corporate decisions, financial shenanigans, outdated strategy, and inept management could have caused the problems.

The Hostess brand emerged from a troubled history at Continental Bakeries. Interstate Bakeries later bought Continental pursuing its strategy of growth by acquisition and mergers. Interstate had a history of run ins with its workers and focused on rapid growth instead of its products and people. For example, in 1982 Interstate Bakeries raided an over funded pension fund to pay off debt on its inefficient plants (“Hostess Brands, Inc.,” 2012).

The Continental merger brought new enzyme technology to the company allowing its products to have a longer shelf life, lowering delivery costs, and improving profitability. Continental like Interstate engaged in an acquisition strategy. Similarly, the company had disputes with its workers and in 2000  lost a suit in San Francisco brought by 19 black workers claiming racial discrimination (“Hostess Brands, Inc.,” 2012).

Again in 2004 the government probed the company’s worker’s compensation reserves and problems with a new financial system the company installed. In 2004 the company filed for bankruptcy still under investigation for how it set its worker’s compensation reserves. In 2009 the company emerged from bankruptcy and relocated to Kansas City only to file for bankruptcy again in 2012 (“Hostess Brands, Inc.,” 2012).

The lesson learned is growth through acquisitions often is a poor strategy leading to financial difficulty if not managed carefully. An entrepreneur would do better by focusing on products and people to grow organically. Entrepreneurs should learn from the Hostess story, acquisitions and mergers often leads to discord between workers and management, and financial problems. Duplication of duties is costly without a plan to remove these costs. A company’s business strategy can become blurred, and the company can lose its focus on its vision and how it best serves its customers.

Kalson (2012) noted how Hostess sold its soul to private equity firms, hedge funds,  and investors while amassing over $1 billion dollars of debt. Acquisitions seemingly erase the competition, but can also serve as the deathbed of a company. Entrepreneurs should think about losing their Twinkies before entering such a strategy.

Entrepreneurs should understand both sides of this strategy before committing to it. If you want to know more about the pros and cons of different strategies contact us to learn more.

References

Hostess Brands, Inc. (2012). Hoovers Academic. Retrieved from http://subscriber.hoovers.com.ezproxy.apollolibrary.com/H/company360/history.html?companyId=15324000000000

Kalson, S. (2012). When all else fails, blame the union hostess gives the twinkie defense a whole new meaning Pittsburgh Post – Gazette. Retrieved from http://search.proquest.com/docview/1220357399?accountid=35812

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