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Motorola's Three Big Mistakes

Businesses of all sizes can learn from the company's stumbles.

Getting in on an industry's ground floor isn't enough.

Just ask AOL, Netscape and now

Motorola

(MOT)

.

The company recently announced it might sell off its cell phone division, dropping the very products that made the company a worldwide name.

It's a sobering move.

Motorola, after all, developed the world's first commercial portable cell phone, way back in 1983. It produced iconic, influential designs, including the first flip phone. Just a few years ago, Motorola's Razr was the world's top-selling handset.

How did the company fall so far, so fast?

Motorola's stumbles are cautionary lessons for every business, regardless of size:

1. Don't overestimate your strengths.

Motorola was built on technological know-how (the company developed the first car radios and built components used in NASA moon missions, among other inventions). It was known for hiring some of the best engineers in the business.

But all that brain power wasn't enough.

"Motorola's original competency in engineering and manufacturing has become less of a competitive advantage," says William Markey, president and general partner of Relevant C Business Group, a Chicago-based advisory services firm that includes a number of former Motorola employees.

Motorola used its tech savvy to produce some cell-phone winners in the past. The 1996 StarTAC, the first flip phone, was influential throughout the industry. The sleek, ultralight Razr, introduced in 2004, became extremely popular. But the company didn't keep the hits coming.

Perhaps most crucially, they failed to anticipate the demand for "third generation" (or 3G) phones: ones with enough power for users to click and store photos of their friends, browse the Web and forward videos from YouTube.

This leads to the next point:

2. Don't underestimate the customer

Technology is moving faster than ever. Cell phone buyers expect better features with each model, and they want those features

now

. And now that phones have become fashion accessories, they have to look cool, too.

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"Our expectations are forever heightened, and responsive companies make technology more accessible and friendly," says Markey. "Motorola's challenge has been to evolve beyond black plastic, standardize the handset technology across different looks and accelerate the frequency of product introductions."

Sure, it's impossible to predict what will be trendy next year. It's hard to keep topping yourself. But if you want to stay in the game, you'd better try.

Motorola could have used all those great engineers to stay ahead of the curve. Instead, the buzz went to

Apple

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and its iPhone.

In total sales, Motorola now lags behind

Nokia

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and

Samsung

, both of which came out with fashion-forward models at a faster pace.

3. Don't rest after success.

Motorola proved it could deliver with the StarTAC and the Razr. But when its star players began to running out of steam, it didn't have enough products waiting on the bench.

Cool gadgets only stay cool for so long.

Constant innovation can be exhausting. Who doesn't want to coast a while after introducing a winning product? But Motorola's situation is a cautionary tale for any business. Because it's a huge corporation, it's been able to take big financial hits and keep going.

Small businesses don't have that much of a cushion.

That's why small-business owners need to keep the moral of the Motorola story in mind: Use your strengths, but always have something else waiting in the wings.

"You need to recognize when your current competency is at risk," says Markey. "Always nurture the next competency, even if it's out of your comfort zone."

Elizabeth Blackwell is a free-lance writer based in Chicago. She is the author of Frommer's Chicago guidebook, and writes for The Wall Street Journal, Chicago and other magazines.