December 6, 2019
Another country-wide business is
closing stores. They blame the economy, but I think that there’s more to it
than that. I think that many companies just never build market saturation into
their business plans.
You start a business. It takes
off. Then people get tired of waiting for the product, so they go elsewhere. If
you don’t want to fail, you have two choices: Price the product high, and
market it as an elite brand; or expand your operation. You may choose to open
locations in different parts of the same city, or in other cities. Then you
build more. And for a while, all is well.
Then the copycats come. Or the
novelty of your brand wears off. Or you cut corners to save costs, quality
suffers, and business slows. Or the economy tanks. Or you don’t pay enough to
keep motivated employees who care about keeping the customers happy. Anything
can happen. And you find yourself looking at fewer profits.
But how many companies build that
reality into their business plans?
From what I’m seeing, not enough.
Major businesses have a handle on
the basics: The minute a copycat competitor opens, they roll out a new product,
or hype their superior customer service, or buy out the other guy and get his
product. But for some reason, businesses are still taken by surprise when their
market shares drop. Why?
Because enthusiasm overpowers
reality when they’re making their expansion plans.
Once a product has proved that it
can sell, the focus is all on expansion. But you have to be realistic: Nothing
lasts forever. You need a cushion in your business plan, one that says, “At
some point, a regional market will be saturated. We need an exit strategy, with
funds available so that when that market isn’t producing, we can afford to move
elsewhere.” Or, “This product will wear out its welcome. If we can’t find
something else to keep customer interest, we’ll need to decrease production and
fall back on exclusivity for a while, until interest returns.” Or, “We need to
move the company in a completely different direction, and pursue a completely
different type of product.” It’s a natural course of events, but one that MUST
be accounted for in the budget.
You need an Eeyore in your
company: Somebody who says, “Sure, it looks good now, but just wait…”. Somebody
who can see the weak spots in your business strategy, and who can figure out
how to adjust for them.
Don’t just look at how well
you’re doing. Look around at the stores who only concentrated on expansion, and
didn’t factor reality into the business plan, and remind yourself of how that worked
out for them.
Don’t be a cockeyed optimist. Pay
attention to Eeyore.