According to the Small Business Administration study, small businesses survive for at least two years and only a small percentage of about 44 percent survive at least four years. The reason why businesses fail is a matter of debate but there seems to be some common mistakes that can make a business sink in no time. This paper will focus on business failure and more particular the reasons for Hawaii's superferry failure in 2007.
Why businesses fail
There are a host of reasons why businesses fail. Most of the businesses fail mainly because the people who start the business ignore market research. Some businesses sprout mainly because some people want to do a particular business and do not know how to carry out the business. Some of the other reasons for business failure are; poor planning, mistaking a business for a hobby, entrepreneurial excitement, poor record keeping and excitement, completion and lack of experience. In our case, we will research how and why Hawaii Superferry failed shortly after starting business.
Background information of Hawaii superferry
The Hawaii Superferry was a transportation company that had its operations from Hawaii and provided passenger and vehicle transportation between the Honolulu harbor and Kahului harbor on Maui. Hawaii Superferry is a private company whose basic funding for its two ferries was $190 million that was guaranteed by the government through the US's Maritime Administration. The other largest private investor was J.F Lehman & Co. with $80 million on the project. One of its fleet was the Alakai which was 350 feet long and could hold 800 passengers and 282 cars. The company did its study of the market although could not publish any income projections. Its projections although were that of a successful company operating a successful business. The company's income forecast was from selling fares at a reduced rate of $44 to $62 for a basic one way fare and for an average car from $59 to $69 with large vans and pick-ups attracting $94 to $104 as fares (Niesse, Mark. Bloomberg business week. APNewsBreak).
Unfortunately for Hawaii Superferry, protests began before the ferry arrived in Hawaii. In addition the services suffered from some teething problems as well. The vessels had some computer controlled stabilizers but services had to be suspended for 11 days in less than two months due to rough winter waters. Another significant problem is that the ridership was lower than initially projected due to publicity issues in the past including the cancellations and transport disruption to travel plans faced by stranded passengers (The Hawaii Superferry).
Protests from Maui residents coupled with legal issues with over environmental impact statements delayed service implementations. The Hawaii Supreme Court suspended the company's operations in March 2009 disallowing the company to operate without a complete environmental, terming it unconstitutional. In 2009 a Delaware bankruptcy court granted the company's motion to abandon both the Huakai and Alaska thereby ending the company's possibility of returning to business.
Before the summer of 2008, the Hawaii Superferry was indeed a success boasting a record ridership. According to the Associated Press, its woes were first noted when the company shortchanging the state the state on its monthly fees. In July 2008, the company was unable to pay fully its state monthly fees indicating it was in troubled waters. Nine months later in March 2009, the Hawaii Supreme Court sealed its woes when the court overturned a state law that allowed it to operate before an environmental impact statement was issued. Two months later, the company filed for bankruptcy. This was as a result of low booking numbers, extensive legal wrangling, protesters from Kauai who rode on kayaks and surfboards to prevent the vessel from landing. The company thus ran out of money and had to close. Neither the company nor the state had disclosed that the ferry service did not make its required monthly payments. This was later done by the DOT upon the AP's request (Niesse, Mark. Bloomberg business week. APNewsBreak).
During the company's first month, the state was shorted on the company's business as the company's president Tom Frago went to proclaim that business was good and the company had a 40 percent increase in passenger traffic as compared to the previous month. The AP shows that the state demanded payment in some of its letters to Superferry and threatened legal action if they did not do as commanded. But surprisingly, the state never followed to the letter's spirit until after the company's bankruptcy. State director Brenn Morioka agreed that the company had financial difficulties and were heading to bankruptcy. The state only kept assumptions because the company kept the company deals close to their chest. According to executive director for Maui Tomorrow which fought Supperferry, people thought that the state was carrying out the business. The Supperferry would pay victims whenever they had an operation and this used to make financial sense. The Hawaii Supperferry Company had paid $2.6 million but owed the state $1.3 million in unpaid fees. The state had invested $40 million in the Superferry supported by Governor Linda.
The court battles started in 2005. This was after Lingle's administration exempted the company from environmental review. Later the Hawaii Supreme Court was to rule against the company's favor. The court ruled that the company could not continue with business until an environmental study was complete. The Hawaii Superferry company had pressured the government to bypass the environmental review. This was discovered in April 2008 by the Hawaii auditor.
The Hawaii superferry's operating agreement with the state was that the company could pay a required minimum of $191,667 in monthly payments during the first three years. The company then was able to pay the full fees from the time it started its operations in December 2007 till July 2008 when the company's payments gradually declined until march 2009 when it could no longer pay altogether (Niesse, Mark. Bloomberg business week).
The company then seems to have closed shop when the star advertiser reported in October 11, 2010 that two of the Hawaii's speed catamarans were sold at an auction in Virginia for $25 million each. The two vessels, Huakai and Alakai, were bought by the US Department of Transportation's maritime administration. The Maritime Administration was owed by the bankrupt Hawaii Superferry more than $ 135.7 million dollars due to loan guarantees it made to help build the ships.
Hawaii Superferry had some issue that brought the company's services to a halt. These issues included:
- Procedural concerns- the Supreme Court in Hawaii ruled that the company was illegally exempted from an EIS and that the law exempting it was unconstitutional. The ruling made on 15th march produced a special legislative session contrary to the agreement that the company operates in 2007 while an environmental impact was conducted as illegal. The ruling thus required the Hawaii Superfertry to cease operations on its Oahu and Maui routes and possibly force it out of business. The court battle was brought up by Sierra Club, Maui Tomorrow and the Kahului Harbor coalition who argued that the law was there not only for one company. But the Supreme Court sided with the environmentalists and thus an injuction stopping the ferry operations were issued. Following the ruling, attorneys for the plaintiff argued that the Hawaii Superferry must cease its operations. And as such, the company's operatins were brought to a halt (Pacific Business News).
- Environmental concerns- critics had concerns with the vessels speed which they claimed was unnecessarily high and could be dangerous to marine life including dolphins, turtles and whales. Environments who were the main proponents said that the route from Maui and Oahu islands ran through the habitat of endangered species. There were also concerns for environmental impact threatened by the unrestricted interisland transportation of vehicles. One such specific concern was that of interisland introduction of invasive species. Several swimmers and surfers at Kauai cheered on by other protesters accupied the middle of the harbor channel and turned back the Superferry. Although some of the protesters were arrested, clearly here, there were tensions building up between the investors pitting them against the local people and environmentalists. One of the protesters, Trujillo was reported on USAToday saying, "We're not all anti-ferry. We're anti- the way it's come." (USATODAY.com.)
- Depletion of natural resources- the Maui and Kauai residents felt that the people from Oahu were taking large quantities of rocks and other natural resources thereby depleting their land of these resources. This was after a news paper, Honolulu Advertiser, claimed that some people had come with their pick-ups allegedly to load their pick-ups with river rocks and return to Ohio. Police investigated the case in which the three pick-ups were loaded with more than 900 large rocks. Some residents testified against the case during a Maui circuit court hearing on requests for permanent injunctions that could keep Alakai's 350-foot catamaran out of service. Conservation officials were especially keen to stop the harvesting and transportation of these rocks and thus the blame was on the Hawaii Superferry (Wilson, Christie. "Hawaii Superferry Riders Took Maui Rocks).
- Militarization- the Hawaii Superferry CEO was a former Navy secretary who was an expert in the acquisition of private endeavors with military applications. They thus pointed out that the Superferry was designed to transport military equipments including even combat vehicles.
- Traffic congestion- due to lack of roads and size of the state, traffic expanding to these areas was also a major concern
Despite all the above concerns about the company, they went ahead and started their operations but unfortunately for them, the protests and court injunctions meant that they had to close business. They filed for bankruptcy on May 30, 2009 and agreed to turn over the ships to the Maritime Administration.
Hawaii Superferry had to close business for various reasons shortly after starting its business. Some of the reasons for closing business included; environmental concerns for marine life due to the vessel's speed, procedural concerns that the company rushed into business without an EIS, depletion of natural resources like stones and fears of traffic congestion. All these factors led to Hawaii Superferry filing for bankruptcy as they could no longer continue with business.