Failing for the wrong reasons: A case study of electronic commerce at Neural Music

In this case study we describe the creation, success, and ultimate failure of Neural Music, a small music retailer with sales both on-line and in a physical storefront. Neural Music was successful in selling cutting-edge, hard-to-find music, increasingly over the Web, to a set of small, but growing, loyal customers. New owners took over and ran the business poorly. Most important, the new owners failed to see the promise of electronic commerce. As a result, they deemphasized the Web side of the business and literally ran the business into bankruptcy. Among the lessons learned from this case study is that, in addition to basic, sound business practices, a small start-up firm in a rapidly changing, consumer-oriented, retail industry can best compete with larger rivals by staying nimble, finding a niche, and selling to a wide audience via the Web. Indeed, Neural Music developed this as its competitive advantage and then, in a strategic blunder, turned away from this source of advantage only to fail within a matter of months.