(FORTUNE Small Business) – Some business disasters are so big you can actually hear them coming. This one sounded like a crack, followed by a gasp. The ugly noises first began in the fall of 1995; skiers checking out the new Kastle Fibre Tube ski would take it off the shop rack and flex it--the alpine equivalent of kicking a car's tires--only to have the new ski snap in two. Then came the gasp, often emitted in unison by both customer and salesperson. "It was pretty dramatic," says former Kastle product manager Scott Mellin, who now runs KDR, the distribution arm of competing Kneissl product manager Scott Mellin, who now runs KDR, the distribution arm of competing Kneissl Skis. "They were snapping in half right there on the show-room floor. A lot of warranty returns were skis that hadn't even made it out of the shop." By the end of their two-year run, Fibre Tube skis were produced with an overall defect rate of about 40%, Mellin says, compared with an industry average of around 0.75%. "But you have to remember," he adds, "this was Benetton."

Wait a minute: Benetton? As in "The United Colors of Benetton"? How did a $2 billion global fashion giant, stacked to the rafters with multicolored sweaters (and powered by the volatile fuel of a provocative marketing strategy), end up owning a ski company? The same way it came to own Rollerblade, Prince Tennis, Nordica ski boots, Nordica skis (originally Kastle), and racquetball-racquet maker Ektelon, as well as snowboard brand Killer Loop. All those smaller companies were part of a Benetton buying spree.

But a common corporate owner isn't all those entrepreneurial brands share. They have also shared a common fate: the shrinking of their respective market shares since Benetton first began acquiring them--at a total cost of nearly $900 million--12 years ago. "Ah, being purchased by Benetton: the kiss of death," says Matt Titus, a former product manager at Oxygen Skates, a competitor of Rollerblade's. Searching for synergies, Benetton uprooted the smaller companies, imposed its brand image on them, and forced their disparate cultures together.

Yet Benetton's struggles contain some value, especially for owners of up-and-coming businesses. After all, the unspoken wish of many entrepreneurs is to grow their businesses so successfully that they are acquired by larger ones, giving them access to a global sales machine, a deep technology base, and a fat marketing budget. In fact, what happened to these sporting-goods companies sheds light on some of the hidden dangers of jumping into the muscled arms of a conglomerate. Indeed, it's easy to see why the smaller companies wanted to be part of Benetton Group, which is based in Ponzano, Italy. Until as recently as 1998, when revenue growth began to flatten, Benetton had been a marvel of fashion success, expanding from a tiny wool-dyeing company in the 1960s into a $2 billion, highly automated juggernaut. Even better, from the perspective of the acquired companies, Benetton seemed to know retailing. By March 1998, for example, when it had finished buying the smaller companies, Benetton had more than 7,000 storefronts in 120 countries.

In-line skaters, Benetton's strategists believed, would buy in-line skating workout clothing. And ski boots couldn't be worn without ski jackets. Benetton would use its expertise to create new members of its fashion sportswear family and grow the newly acquired (and already established) hard-goods brands in the bargain.

It didn't work out that way. When Rollerblade CEO Dennis Shafer assumed the new position as CEO of Benetton Sportsystem, the division that contained the acquired companies, he launched an aggressive campaign to combine sales forces, back-office staffs, and even marketing groups. "I tried to integrate the three brands as much as I could," he says. The result, according to George Napier, turnaround artist and the company's new CEO as of September: "When I came in, I found a company with proud people who were stunned by the fact that we were being run as if we were selling aspirin or socks."

In fact, while Benetton had unknowingly purchased nearly every company at the top of its respective market, the bottom-line effect of Benetton's strategies on its sporting-goods brands is clear: Nordica ski boots, the No. 1 brand in the U.S. when it was purchased by Benetton 13 years ago, is now No. 3; its American market share withered from 29% to about 14% in the past year, according to retail audit numbers assembled by the industry. And Prince, the category leader when Benetton bought a controlling interest in it in 1990, has slipped from No. 1 to No. 3, behind rival brands Wilson and Head.

Even Rollerblade, which as recently as 1995 had a 35% stranglehold on a $550 million wholesale market in the U.S., is not only losing money, claims former skate industry marketing manager Titus, but also pulling the whole category down with it. "The failure of a category leader is very disconcerting to consumers," Titus says, "especially when the brand name is synonymous with the sport."

That said, there's reason to believe that Benetton has learned from some of its errors. "Benetton made a mistake, forcing the hard-goods companies into a soft-goods business model," concedes Napier. "It's not surprising that they would think it would work, but it was a mistake."

From the start, the cultures of the companies weren't nearly as portable as Benetton thought. "The people who are in these businesses are often in them because they love that activity," says Napier about the skiers, skaters, and tennis players once employed by the smaller brands Benetton acquired. "If you sap that, you have nothing--internally or competitively."

Clearly, though, then-CEO Shafer wasn't of the same mind--in 1999, just one year after Rollerblade had been purchased, not only was the Minnesota-based company in trouble, but it was in New Jersey. Why? A company's location "is moot," Shafer says. "The market for the sports businesses are where the enthusiasts are." In fact, it's no surprise that Benetton Group in Italy agreed with Shafer's assessment and supported his consolidation plans--moving Rollerblade to the home of its new siblings, Prince, Ektelon, Nordica, and Kastle; at that time, the parent company was also living by its own model of strict, streamlined centralization, as outlined by CEO Luciano Benetton's frequent efficiency epistles in his annual reports. (Benetton, the company's founder, declined requests for an interview, referring all questions to Napier.)

For Rollerblade employees, the move toward efficiency required an even bigger move: Goodbye, Eden Prairie, hello Bordentown. Indeed, Shafer found it more difficult than he had anticipated when he gave the company's 80 employees the news: He was letting 59 of them go. The remaining workers and their headquarters would be moved 1,000 miles southeast. The problem: Many Rollerblade employees had lived in skating-mad Minnesota since the company was founded in 1980. At lunchtime, there were even roller hockey games outside headquarters. "I had to talk 21 people into moving to Bordentown," Shafer says. "It wasn't easy." The new location was aesthetically unredeeming--a low-slung office complex that was 200 yards from a truck stop. Shafer jokes that he finally came up with a novel sales point: "I told them New Jersey was the Garden State."

Perhaps unconvinced, the employees were, however, offered a safety net. According to Rob Koenan, then Rollerblade's senior director of marketing, Shafer paid for them to move and gave raises and promotions to many of them as well. He also allowed them up to a year in New Jersey to determine whether they wanted to stay. If they decided to return home within that time, Shafer would move them back and give them severance packages of up to two years. The offer was hard to resist--the going-back-to-Minnesota part, that is. The first Rollerblade employee left within three months. Nineteen more followed. The net gain during the Rollerblade diaspora: one employee. The net loss: "Hundreds of thousands of dollars and one company culture," says Mike Bizner, former director of winter sports for the division. "People talk about a lot of reasons for Rollerblade's difficulties, but I believe one of the major reasons for loss in Rollerblade sales volume was the dismantling of the company core."

In fact, by the time Rollerblade arrived in New Jersey, Benetton's cultural upheaval had already begun. Nordica's CEO, for example, was fired when the ski boot company was moved from its Burlington, Vt., headquarters in 1997; Prince's New Jersey CEO was then assigned to run both Nordica and Prince. When Shafer took control of all three companies in 1999, he "canned the whole Prince [sales] team, so he lost all his pros," says Bizner. "Wilson picked them all up."

With Rollerblade reps suddenly reporting to Nordica reps and the companies' internal cultures in flux, disarray became the order of the day. "In 11 months of consolidating the division," Bizner says, "Benetton went from making $5 million in the U.S., on $400 million in sales, to losing $31 million."

It must have been thrilling: after years of craving decent marketing budgets, companies like Nordica and Ektelon suddenly had a huge parent with a worldwide marketing budget in the hundreds of millions of dollars. Better yet, the company's successes included sports marketing--its Formula One racing team, for example, had won two driving championships in the mid-1990s. Furthermore, its sponsorship of championship soccer, rugby, volleyball, and basketball teams was becoming legendary--nearly every team Benetton backed had won its version of a national or European title. Unfortunately, as the smaller brands would soon find out, a big marketing budget does not necessarily produce a bright idea. There was much excitement surrounding the unveiling of the division's 1995-96 marketing campaigns, which took place at a Benetton showroom in New York City in the fall of 1995. "The room was packed," recalls Bruce Barrows, former vice president of marketing for Kastle, Nordica, and Killer Loop. "It seemed like all the media in New York were there."

And then they unveiled the ads. "People's jaws dropped," Barrows says. "We were in a state of shock."

A Kastle print ad featured Nazi athletes saluting the Fuhrer. Another ad (for the ill-fated Kastle Fibre Tube product) juxtaposed a picture of skis with a soft-focus shot of the Virgin Mary weeping tears of blood. "Open your mind to the light," the ad copy exhorted. "Kastle Fibre Tube: New Tools for an Old Cerimony [sic]. It's not a miracle." Says Barrows: "There were pornographic Kama Sutra images for Prince Longbody tennis rackets; there were dogs killing rabbits; there was Castro playing baseball; there was a big sperm."

Given what they had seen, Barrows and his group had a tough decision: which ads to run. The answer? "None of them," Barrows says. "We told Benetton, 'We're not running these ads.' And they said, 'Oh, yeah? Then you're not running any ads at all.'" Nordica ended up pouring its money into promotional efforts.

Beyond being annoying, Barrows points out, Benetton's refusal was ominous. The parent company was beginning a distressing trend of usurping the U.S. companies in areas that were not traditionally its strength--marketing items like skis that had an 18-month product-development cycle, for example--or ignoring the companies altogether.

Many of Benetton's actions grew out of its simple quest to figure out what synergy actually existed. "After buying at the height of the market," says Bizner, the division's former winter sports director, "there was a tremendous pressure to create an 'umbrella' of sorts. 'Finding the right synergy' between these brands became a big deal. But there were multiple false starts in searching for those synergies. Like Fibre Tube." According to Bizner and former Kastle product manager Mellin, the technology that was used for the Fibre Tube ski that cracked in the ski shops was actually a successful technology for Prince tennis rackets that had been rushed into the ski division. With dire consequences, as it turned out. "Pretty soon, the brand's viability was basically zero," Mellin says.

The forced alliances within the division were also problematic. "The fatal mistake was making the sales reps from different companies work together," said Bizner. "You had Nordica reps who were suddenly reporting to Rollerblade reps. There was this fiction that you can create this mystical synergy where 1 + 1 + 1 = 5."

Not under Napier. He has begun re-creating dedicated product groups that are responsible solely for the products they sell. And he's fashioning an atmosphere in which the groups can focus on reviving their brands. "Pick your strategy," advises Napier, "stick to it, get guidance from the parent company, and just go. You have to be willing to stand up to the parent sometimes to get things done." In the end, Benetton's massive resources didn't include what the smaller brands needed most of all: passion.