Sunday, August 7, 2011

Beware of Industry Shifts

“Any change, even a change for the better, is always accompanied by drawbacks and discomforts.” ~Arnold Bennett


The only thing that is truly constant is change. Some entrepreneurs make the incorrect assumption that they can resist change by working harder, but the truth is that if we do not adapt, our business will pay a high price.

In most cases, change in an industry is caused by technology. Take, for example, the complete demise of camera shops and the closing of the Borders franchise. The advent of digital cameras made the services provided by camera stores obsolete, and e-readers are replacing paper books delivering a blow to traditional bookstores. On a related note, with electronic communication becoming the norm, quick-service copy shops are also seeing falling sales.

The emergence of new product delivery methods can cause disruption in an industry as well. A perfect example of this is the frozen yogurt franchise. For a long time, frozen yogurt was served to the customer by a clerk behind a counter and payment was accepted by another clerk located at the other end of the counter. New yogurt stores are now completely self-serve with only one clerk to man the register.

Consider also how much education has changed. We are moving quickly to online classes as a cheaper and more effective alternative to traditional methods of learning.

With all these examples, the important thing to note is that whatever the cause of the change, industry disruptions will always occur. No matter how much we wish they would not, disruptions like these are the rule rather than the exception.

So, we know these disruptions are going to happen, but how do we anticipate them? I think the answer to this question is twofold. First, you must continuously monitor your sales and make sure that you have an early warning system in place to alert you of any significant changes.

Because many changes happen relatively slowly, you will typically have plenty of time to adjust your business. The key is being aware of them and giving yourself the opportunity to respond.

In monitoring your sales, it is important to know that a decline does not necessarily mean an industry shift is occurring. It could just indicate increased competition or lower prices. Whenever you see a change in sales, it is critical that you determine what caused it.

Whatever the cause, declining sales should be vigorously investigated. Are they falling because the firm is inefficient, because there is more competition or because a structural change has taken place? Obviously, we cannot take action to fix sales until the cause of the decline is understood. If, in fact, the cause is an industry shift, the next task is to figure out what other markets you might be able to effectively enter.

The second piece of anticipating change is watching the health of your industry and listening to what others are saying about it. The more you know about what other people are saying and doing, the better off you will be. You should still be cautious though as the “experts” often completely miss the structural changes.

Now go out and make sure that you have a plan in place to recognize falling sales and identify the cause of the decline. If it was caused by a permanent change in your industry, you will need to find other avenues in order to remain competitive.

You can do this.

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