Signs That You are in the Wrong Business

In early May, the record industry set a new standard.  Not a standard they’ll be pleased with, but it may be the best evidence yet that the “reports of its death are not exaggerated.”  The week of May 12, 2010, marked the fewest number of total album sales, 5.3 million, in a single week since Nielsen SoundScan started its tracking in 1991.  Some reports actually had this as the worst week of record sales since the early 60’s

Now my daughter will be happy to know that Justin Bieber was the best selling album of that week and record industry execs may say they are just waiting for a number of highly anticipated album debuts, but the truth seems to be that the industry is dying.  We may have more music choices than ever, but the record business itself is dying and its been dying for about 10 years.  From file sharing to iTunes, the recording industry seems to have little to offer consumers.

Warning Signs

So what are the signs that your industry may be dying?  The Motley Fool says the top four signs of a dying business are:

  • Bad Boards,
  • Too Much Leverage,
  • Cash Flow Problems and
  • Bad Investments.

Certainly poor governance combined with a lousy balance sheet are signs the end may be near, but what if your entire industry is changing for the worse.

A Frog in Hot Water

Folklore has it that if a frog is placed in boiling water, it will jump out, but if it is placed in cold water that is slowly heated, it will not perceive the danger and will be cooked to death.  You can do the test at home, but the notion does holds true for most business leaders.  Major changes, or what Andy Grove called inflection points, can sometime shock us into a new direction, but very gradual changes in the market can lull us into a false sense of security.  An inflection point occurs “where the old strategic picture dissolves and gives way to the new.”  The more gradual the dissolution of the picture dissolves, the more difficult it is for us to react properly.

Get the Facts

During gradual market shifts, it is important to collect and analyze relevant data.  Looking for trends and gradual shifts in the market place gives you the opportunity to make gradual changes in response to the stimulus.  The problem is that small management changes don’t always keep up with the market.  Sometimes, transformational changes are required.

Break Down the Problem

The auto industry has suffered more than most in the last 10 years, but how should auto manufacturers respond to the changes in the market?  Do they address fuel efficiency, size, look, power output, reliability or all of the above?  This is when industry expertise really plays a huge role.  A knee jerk response to fuel efficiency may be just the tweak needed or perhaps reliability and looks are still the main drivers.  The key is understanding the components that comprise the buying patterns of your customers and then making fact based changes.

Another dying industry is the member management business.  That industry has been hit by the double whammy of membership loss and major technology changes.  No longer are people interested in joining an association for $150 a year just to get a quarterly magazine.  They’ll join an industry, market, or interest area specific LinkedIn Group or Google Group for free!  Companies in this space have had to shift into market segments where they could possible redeploy their core competencies.  A major move indeed!

A 2010 report from IBIS World, published in Inc. magazine, Voice Over IP (VOIP), eCommerce and Recycling were a few of the projected high performing industries over the next decade while the Video Rental, Wired Telecom Carrier and Tank industries are projected to be on the downswing.

Best Performing Industries In The Coming Decade (2010-2019)

1         Voice Over Internet Protocol Providers (VoIP)          149.6%

2         Retirement & Pension Plans                                     133.7%

3         Biotechnology                                                        127.6%

4         eCommerce & Online Auctions                                 124.7%

5         Environmental Consulting                                        120.3%

6         Video Games                                                          112.9%

7         Trusts & Estates                                                      105.7%

8         Search Engines                                                       100.9%

9        Recycling Facilities                                                    80.9%

10       Land Development                                                   72.7%


Worst Performing Industries In The Coming Decade (2010-2019)

1        Wired Telecommunications Carriers                          -52.0%

2         Tank & Armored Vehicle Manufacturing                     -51.9%

3         Small Household Appliance Manufacturing                 -34.4%

4         DVD, Game & Video Rental                                     -32.8%

5         Photofinishing                                                         -31.5%

6         Lighting & Bulb Manufacturing                                  -26.8%

7         Telecommunications Resellers                                  -26.4%

8         Laminated Plastics Manufacturing                              -25.3%

9         Synthetic Fiber Manufacturing                                  -24.6%

10       Wire & Spring Manufacturing                                    -24.5%

Leaders must constantly collect the data, search hard for the strategic inflection points and face the cold hard reality of their market place.  Anything short of this and your competition is having frogs’ legs for dinner!

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