Last week I met with a business contact to catch up. During our conversation we talked about the challenges that his current business faces.
They are a successful company and probably considered leaders in their market. They have healthy profit margins and their industry is in rapid growth.
All the ingredients for yet more success you’d think, right?
The problem is that whilst their industry is growing rapidly there is change afoot.
Technology is transforming their landscape, customers have even more choice than before and there is the potential of regulatory change but healthy profit margins are insulating the minds that run the company.
After all if the numbers are good why change?
That is the kind of thinking that can kill a company.
I’m not saying numbers and financials aren’t important. All the usual maxims around cash and cash flow are still relevant but just focusing on the numbers can mask the real threats.
Look at the book market and what Amazon did. Why didn’t the major market leaders think to do what Amazon did? The answer I’d say is that they were too comfortable in their business model, their numbers and the way they did things. They got caught looking the other way and have been playing catch up ever since while Amazon keep pushing the boundaries and adding to their offering.
More recently Zappos has transformed the shoe market. Tony Hsieh, their CEO, isn’t a shoe expert but yet he grabbed the opportunity in the market which was also available to dominant players in the industry. You can order shoes online from Zappos, return them for free and you get rockstar customer service as a bonus. Now compare that to your average High Street experience.
In my own experience I worked for a very successful brand that committed suicide because it got locked into its numbers and ended up chasing its tail. The business was so focused on delivering a number that it became reliant on what turned out to be a toxic business model. It drove out all meaningful creativity and innovation which had made it a leader in the first place and instead transformed itself into an also ran as the market changed and swallowed it whole.
Great organisations know that numbers are just numbers. You can’t afford to rest on your laurels and wrap yourself in the comfort of healthy margins. You have to keep your eyes on what’s happening around.
So, I’d encourage you to take a look into your business.
Do you have any ‘sacred cash cows’ or products that you’ve become over reliant on to drive revenue?
If so, are you thinking about what might happen if all that changes?
Are your numbers hiding something you need to pay attention to?