How many extinct brands and businesses do you remember with affection – but without a sense of being disadvantaged by their absence? The world can live without these companies and brands and, probably, without your business too.
Business reach the end of their lifespan but rarely die purely as a result of market irrelevance. More likely, they collapse as a consequence of their inability to cope with other matters such as their debt burden, competitive innovation or, as in the case of Reader’s Digest, not being able to fund their pension liabilities.
A recession tends to expose these weaknesses, making remedial action ineffective. The “cure” requires time and cash – resources that have probably been consumed by the process of merely surviving.
But there is no inevitability or bad luck at work here, only managerial failure. Running a company is about risk identification and management. The pursuit of financial return requires the acceptance of some risk of failure. Managers do not often choose these risks explicitly and therefore take no steps to manage them.
Recognising the vulnerability of a successful business model is one of the hardest managerial tasks. Having found success, the natural tendency is to glorify in it, preserve it and exploit it. Such arrogance is dangerous in itself but, in addition, the means to preserve this profitable position lie beyond your control. A business’s continued viability is always dependent on the actions of others. Success often attracts the attention of others who look for disruptive ways in which to shift the value proposition in their favour and at your cost.
Good management is often about being counter intuitive – recognising that how you manage in your period of greatest success can sow the seeds of your subsequent failure. Arrogance and complacency are at the root of most corporate failures.
The best response? Disrupt your own business model with new ideas that are beyond your customers’ imagination. If you don’t, others will.
How do you begin? If you have relied on the same business model for more than three years, it is probably at risk of becoming outdated as new systems, new products, new competitors and emerging customer demands destabilise the equilibrium you have enjoyed.
The more content you feel with the way you do things, the greater the danger of complacency. In the current climate, you should not feel comfortable.
You and your close colleagues should each write notes in answer to the following questions;
- Which three things are wrong with the current way we do business?
- In five years’ time, how will our customers/clients be different from today?
- In three years’ time, what business model will our most threatening competitors use? and
- If we were starting this business today, what business model would we choose?
Once you have everyone’s individual thoughts on paper, share them and decide whether there is agreement that change is unnecessary, essential or just beneficial.
If you are a larger business, use an external individual with no involvement in the business to moderate the group session.
You might conclude that your current business model is fine. But at least you will have reached this conclusion a result of exploring other options rather than just proceeding on the untested belief that your model is adequate.