Success?

 

 

Welcome to 2018, This year Revitalization Partners celebrates its 15th year in business.

We began writing our blogs about 6 years ago and this is the first one of the New Year.

These blogs are generally based on our experience or on the experience we read or hear about that we believe will be valuable to share.

This Holiday Season, I received a drone for the Holidays. It is not a toy, but a sophisticated aerial photography platform. OK, it’s an adult toy.

And after spending three days following instructions, sending messages to technical support and looking at every you tube video I could find, nothing.

Some of the software said it should be working, but the drone didn’t sync-up with the software.

The company, located in China has 70% of the world-wide drone market and about 80% of the higher end consumer market. It has revenues of $1.5 billion in a market that is growing about 30% a year.

Some of their products work perfectly fine and others, well, the comments on the forums and comment boards are tough. “Two-thousand-dollar piece of crap.” Is one of the milder ones.

That led us to thinking, how many market leading companies that we knew have had great success and then lost the market. Some based on their performance; others so enamored with their success that they missed changes in the industry and others that just stopped listening to their customers.

Digital Equipment Corporation was founded in 1957 making digital cards for the controller industry. At its peak, the company had $14 billion in sales and employed 130,000 people worldwide. It was recognized as the second largest computer company in the world.

Yet, by 1998, it was sold to Compaq Computer after sustaining over $200 million in losses that year. So, what happened? As DEC invented the minicomputer model when computers meant “mainframes”, it became so attached to the success of that business model, it failed to recognize the impact of the microprocessor and the impact it would have on the computer business.

In fact, Ken Olsen, the founder and CEO of DEC is famously quoted as stating: “Why would anyone want a computer in their home?” And with that, the company’s fate was sealed.

IBM, a larger company with a longer business history, recognized the potential of the market and was able to break free of its traditional business model, sending a small group off to Florida where they figured out how to make a microcomputer for under $2000 with 20% margins.

The PC created an industry. DEC no longer exists.

These lessons don’t only apply to the fast-moving technology industry. Sears, founded in 1898, was the major retailer in America from its founding. By 1895, the famous Sears catalog was 532 pages and contained everything from dolls to houses. In the early 1900’s you could order a complete house package including appliances and have it delivered to your door.

And yet, by 2017, all Sears had left was basically a few stores and real estate. It had sold off its premium product lines such as Whirlpool and Craftsman, as well as most other assets. The company has gone from 3500 physical stores to a projected total of 680 in 2018. Sales peaked in 1992 at $59 billion and by 2016, sales were down to $22 billion and dropping. In contrast, Amazon, which was founded in 1994 achieved $136 billion in sales in 2016.

What are the lessons to be learned for the rapidly growing drone company and others with major market positions?

1. Watch out for disruptive innovations. These are not just technical innovations, but business model and customer service disruptions. In technology, the technical disruption was the microprocessor which so simplified the design of a computer that they could be developed and sold by almost any company.

2. Business disruptions did more to sink DEC than technical disruptions. DEC had microprocessors, but their business model could not bring the technology to the market in a rapid and cost-effective way. In the case of Sears, the problem was not technology, but a changing business model based on consumer tastes and on-line shopping. Like DEC, they could not accommodate the paradigm shift of the market.

Edger Schein, professor emeritus at the MIT Sloan School argues that a corporation’s founding values, if they lead to success, tend to ossify as a set of tacit assumptions about successful strategy.

When the business environment shifts, the organization may not be able to adapt, rejecting plans or ideas that don’t fit its preconceived notions. The illusion that organizations can control their own fate stems from the failure to understand how technology and culture limit what is possible.

You don’t have to be a market leader to take Schein’s words to heart. Companies with any degree of success develop those assumptions.

If you are a founder or manager of a successful company, continuing that success is dependent on your ability to see the change coming and act on it.

By the way, the drone is now working.

 

Revitalization Partners is a Northwest business advisory and restructuring management firm with a demonstrated track record of achieving the best possible outcomes for our clients. And now, we’ve written a book to help our readers understand the issues facing their businesses. You can find this compilation of our business thoughts at:
https://revitalizationpartners.com/we-could-write-a-book/ or on Amazon.

We specialize in improving the operational and financial results of companies and providing hands-on expertise in virtually every circumstance, with a focus on small and mid-market organizations.

Whether your requirement is Interim Management, a Business Assessment, Revitalization and Reengineering or Receivership/Bankruptcy Support, we focus on giving you the best resolution in the fastest time with the highest possible return.

Change is Good??

 

For the past 20 odd years, when in the small town that is home, on Friday nights, I have gone to the same club for dinner. And for over 25 years, club management has always had something on their limited menu that will satisfy my very picky food tastes. Until recently.

After some 25 years, the club manager retired and a new manager was brought in. She is younger, and with the board, made significant changes to the food menu. So, in addition to new management, there is a new catering staff.

In the past, no matter what was on the menu, I was always able to get a simple baked potato. For almost 25 years. But now, the only starch served is rice pilaf. It is supposed to be healthier as are many of the new meals. While having dinner with some friends, I commented on the joys of the “old way” and was promptly reminded: “Change is good”.

 

Learning Important Skills …

On coming home from dinner, I watched a TV news show that did a feature on how difficult it was for high school kids to get summer jobs this summer.

The piece pointed out that many of the jobs the kids had held in the past were not available as the stores in malls were closing and that the new jobs were in back office fulfillment jobs, picking boxes from shelves and shipping product.

While certainly decent summer jobs, they don’t have the advantage of providing those early skills of how to deal with people, especially customers from both a helpful and sometimes difficult standpoint. But, hey, change is good!

 

Remember Sears ?

A couple of minutes later, the story was about Sears closing another 20 stores. In 2017 alone, Sears has closed over 150 stores and is widely expected to be bankrupt by the end of the year.

Remember, Sears was the Amazon of its day, with a catalog from which you could purchase literally anything from underwear to a car to even a prefab house.

It grew to one of the most successful department stores of its or any time; now to be almost out of existence.

Why? Because management believed that they controlled their customers rather than responding to their needs. And because customers only really respond to their own needs, if they can’t find them met one place, they will go another. Witness the ultimate Sears replacement, Amazon.

Founded in 1994, going public in 1997, the company made its first small profit in 2001. Now with revenue of $43.74 Billion, it continues to not make much, if any profit.

But, for the moment, as consumers, do we really care? Many of us buy everything from clothes to tools to books from the company without leaving our computers.

The company meets our needs without having to go to the mall, search for parking, look around for the size or color or coordinate a time to meet with our friends. Is it less social? Absolutely! But since most of our interpersonal relationships now take place through sites like Tinder, does it matter anymore?

 

Finding The Next Business Superhero …
Several years ago, I was asked to join the board of directors of a venture backed company that was failing. As a board member and advisor to the company, I met with management and asked the what each of their individual strategies was for the company.

The marketing director (who lasted about two days following this interview) informed me that the strategy was to show potential customers that the CEO was the next Bill Gates. No matter how hard I probed, that was the strategy. What she and many other executives fail to realize is that there is never another Bill Gates, or Jeff Bezos, or Elon Musk.

As a side note, the investors elected to sell the majority of the company and partner with a new group of investors. With a new management team, today the company is almost a household word in business and is on the verge of a public offering.

 

A Strategy For Change …

When I hear Walmart or Penny’s or any other company talk about their strategy for change as “taking on Amazon or Microsoft, etc. you know that these companies have no strategy for change at all, they are only emulating those companies or executives that created a change that has already occurred.

They view their need to change based on where they are coming from, not from where their customers or market have already moved.

 

Whether you are a manufacturer, retailer, accounting firm or attorney, when you think about change, it cannot be based on where you or your company is coming from, but from the place the market is today, regardless of how far behind your market you may be.

Only by creating true change can you succeed in fully serving and keeping your customer or client base.

As for me, I’ll still hope I can get a baked potato once in a while.

 

Revitalization Partners is a Northwest business advisory and restructuring management firm with a demonstrated track record of achieving the best possible outcomes for our clients. And now, we’ve written a book to help our readers understand the issues facing their businesses. You can find this compilation of our business thoughts at:
https://revitalizationpartners.com/we-could-write-a-book/ or on Amazon.

We specialize in improving the operational and financial results of companies and providing hands-on expertise in virtually every circumstance, with a focus on small and mid-market organizations. Whether your requirement is Interim Management, a Business Assessment, Revitalization and Reengineering or Receivership/Bankruptcy Support, we focus on giving you the best resolution in the fastest time with the highest possible return.