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Your Business Model Is Obsolete And Falling Profits Face You

Mar 21, 2008
Rapidly evolving customer needs and new technologies have meant that many products, services, and ways of producing goods and services have become obsolete. When that happens, businesses are most commonly faced then with this difficult choice: Destroy what they have on hand by using a new skunk works operation, or acquire nimble competitors and hope to adjust. How nice it would be to create more choices for the most volatile circumstances!

In the late 1990s an additional organizational model developed that is well suited for operating with the most volatile irresistible forces: Establishing a business that needs little capital and is very flexible in providing goods and services. An early example of this involved the rapid growth of Amazon (the Internet retailer) in the late 1990s.

The company first grew from nothing to a major factor in the retail book marketplace because it required little investment (other than funding start-up losses) to operate its business. This success also caused the company to have an equity market capitalization that was larger than the rest of the retail book publishing and retailing industry combined.

Going forward the company could grow faster in book retailing for a time because it did not have to build retail stores, could carry less inventory than a store-based chain needed, and was supported by equity investors more interested in long-term growth than short-term profits.

In the manufacturing sector, making products to order is another enterprise alternative that also provides great capital management advantages. In these circumstances, the company making a product may only order the components it needs after actually receiving the order for its product and having been paid by the customer.

In such a business involving lean manufacturing, the producer may have negative working capital (like a supermarket) rather than 60-90 days of outstanding receivables and another 60-90 days of inventory. A key advantage of this approach is that the company does not have to worry as much about having a lot of obsolete product should the irresistible forces shift against it.

It does have to be sure that its designs are closely tracking the evolving customer preferences. By selling directly to even small customers in many cases, these suppliers will also be able to reduce their risk of missing important shifts in market trends driven by irresistible forces. Dell Computer was an important innovator of this approach in the computer industry.

How can you not only improve your business model, but make it more flexible for adapting to future shifts in trends?
About the Author
Donald Mitchell is an author of seven books including Adventures of an Optimist, The 2,000 Percent Squared Solution, The 2,000 Percent Solution, The 2,000 Percent Solution Workbook, The Irresistible Growth Enterprise, and The Ultimate Competitive Advantage. Read about creating breakthroughs through 2,000 percent solutions and receive tips by e-mail by registering for free at

http://www.2000percentsolution.com .
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