This is a generic tale, representative of several stories I have witnessed in the past. It is not about any one particular businessman, but I know several that can relate to the story.
It begins with a hard working small business owner who finds himself in a very desirable position. Whether due to a great product, or strong people, or a fast-growing market, or lack of competition, etc., the businessman lands in a sweet spot in the market, and becomes very successful. And in this success are the seeds of his undoing.
Lets be clear: for the businessman to create a successful company, even in this sweet spot, he must work hard and work smart. He deserves great credit for building the company and capturing the profits produced by all this work. To use a sports metaphor, once he sees the hole in the line, it still takes a great athlete to run the ball, avoid the opposition, and get to the goal-line.
Too often, however, this great entrepreneur has a weakness. Its roots lie in the fact that the business owner didn't create the sweet spot, he just found it. Sometimes, he just stumbled into it. Consequently, he never really studied the key underlying elements that contributed to his success. Maybe it was a truly unique product, or some innovative marketing, or simply getting into an evolving situation first. Whatever his initial advantage, he didn't keep a close watch on it as things shifted.
What causes a shift?
- New technology arrives on the scene,
- new players enter the market,
- customers begin to look for other options and new features,
- new advances are changing cost structures.
Virtually every key element in a business plan is constantly, and slowly shifting. The entrepreneur who falls into a sweet spot often has trouble noticing these subtle shifts.
Which brings us to the other element of bad luck: the shifts often start in subtle ways.
Why is worse, you ask, for the business elements to shift slowly rather than dramatically?
Why is the slow shift worse?
When the business owner that gets hit on the head by the two-by-four of radical market inflection, he falls down, gets back up, and immediately understands that everything has changed. He knows he can't survive by simply making small adjustments or minor tweaks to his system. He instinctively knows that continuing to do things the same old way will lead to disaster. And so he seeks radical change.
But the subtle shifts are hard to see, and much easier to rationalize. When business is down 2% one year, he can blame it on a new competitor. When business falls another 3% the next year, he wants to believe its because he lost one of his better salesmen. And when the slow, downward spiral continues, he clings to the idea that just doing the old things the old ways (maybe faster, better, harder) will put him back on top.
He was lucky, and had some great success in the past. That success, however, hurts his ability to deal with the future.
Practical Tip of the Day:
Be pro-active!
- Identify your most profitable line of product / service
- Look for the underlying reasons for this profitability (lack of competition, unique product features, low production costs, etc.)
- Develop a system to accurately chart these metrics quarterly.
- Be prepared to adapt quickly, as shifts occur.
