August 30, 2014

You Can Make Money Even as Your Industry Declines

Businesses make piles of money even in declining industriesA recent article by Geoff Williams in Entrepreneur.com lists 10 industries that will be extinct in 10 years.  Among them are: telemarketing, used book stores and camera film manufacturing — just to name three.

Interestingly, however, he does not predict that most will be 100% gone.  Rather, he predicts that most will be in the final throws of a steep decline in 10 years. They will still be around in some form, although mere shadows of their former selves.

That rings true to me. I sometimes read predictions that unrealistically decree the overnight demise of this product or that industry.  In real life, industries rarely disappear overnight — in fact, I’m hard-pressed to think of a single example.  Usually it takes a number of years — sometimes decades — during which the industry shrinks and dies an agonizingly slow death.

Sales slow down, every year getting smaller and smaller.  Customers gradually move on to some new solution that meets their needs or desires better.

Some businesses in declining industries remain profitable for years — just smaller.

The proprietors try to keep them going as long as possible and milk the cash cow. They tighten their belts and shrink expenses to stay in line with shrinking sales, as they ride the downward trend.

They know that some level of market demand will linger for a long time.  Because even while droves of customers may move on to the latest and greatest replacement, human behavior is such that consumers do not move at the same pace. (Ever heard of early adopters, late majority, laggards?) And the same holds true for B-to-B markets.  Just like consumers, business customers do not move to new technologies or solutions at the same pace, either.

Some businesses actually manage to achieve temporary growth spurts in the midst of dying industries. For instance, you may see consolidation plays where one player buys up other struggling players (say, to maintain economies of scale in production facilities) and milks the remaining years for every dime. Or the stronger players just out-wait the pack and gobble up the crumbs left behind as competitors go out of business one by one. Or sometimes businesses branch out to foreign markets where the rate of decline may be much slower.

Temporary growth spurts can mask long-term industry decline. That’s why if you are ever considering buying a business or investing in a franchise, make sure you understand whether any growth reflects long-term potential versus a temporary spike. The difference fundamentally affects the business’s value.

The smart companies in declining industries deliberately cannibalize their own businesses. As the old industry is declining, they invest in alternative business lines or disruptive technologies that are replacing it.

You see this happening right now with the yellow pages industry, where the players are investing in online initiatives through acquisitions and/or organic growth, even as their print books gradually decline. Smart companies don’t wait until it’s a dire emergency. The more strategically they think, the earlier they start. As soon as they spot the first signs of decline, they look for whatever else is blossoming and figure out how to make money in the replacement industry, even if it means a radically different business model. It can be a win-win for companies that have a foot in the old industry and in the new industry replacing it.


6 Comments ▼

Anita Campbell - CEO


Anita Campbell Anita Campbell is the Founder and Publisher of Small Business Trends and has been following trends in small businesses since 2003. She is the owner of BizSugar, a social media site for small businesses, and also serves as CEO of TweakYourBiz.com.

6 Reactions

  1. It depends on how long the business was around before it starts to decline as to if it can disappear over night.

    Think “Pony Express”. Was only around for about 6 months before the telegraph, and within 3 months, I think, it was no more. Just my example that came up quickly.

    It took several years for e-mail to kill the telegram – but I know of no operating telegram businesses at this time.

  2. Great article. I think the only way to survive from a dying industry is evolving themselves with newer technology and ideas in order to expand, and hopefully survive.

  3. I do agree with Geoff that print newspaper demand is on the decline. I think that the younger generations will look more to the tv & internet for news worthy stories. Keeping up with technology will be their only means of survival.

  4. I think they say that lawn mowing businesses will also be extinct but I think they will be around for awhile yet. Most people wouldn’t trust a robotic device to mow their yards just yet but then again, who knows. Nice article. Thanks.

    Chris J.

  5. I agree with David. It’s important for businesses, especially NOW, to be open to evolution, even if it might involve moving from one medium to another (i.e. print newspapers to online publications). Technology moves at a fast pace and it’s important for companies to be able to adapt or better yet, predict changes that might be coming their way.

  6. Consider Smith-Corona, based in Cortland, New York. Just think what they could have achieved in the “word-processing” business if they didn’t view themselves as a buggy-whip business?

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