Driven to Business with Eddie Mayfield

I can’t think of a single business that isn’t threatened in some manner by a changing business environment.  This has always been the case; technology is just making the changes faster for most of us.

In 1967 Scientific Instrument manufacturer Keuffel & Esser interviewed a number of scientists as part of a study to gain an understanding of what the future might look like.

Some of their findings were startlingly prophetic.  They predicted 3 D TV, electric cars, automatic controlled traffic lanes, and other innovations.

One thing they didn’t uncover however, was what was about to happen to their business.  Keuffel & Esser was the country’s largest producer of slide rules.  Somehow, they failed to take into account what the electronic calculator would do to their business.

I first heard that story many years ago.  There’s a certain nostalgia to it, because I went to school using a slide rule.  But, the business lesson here is unmistakable, and is repeated all too often: you MUST stay atop changes and innovations in your market. You cannot sell slide rules in a calculator marketplace.

My own experience might prove helpful. When I first started Electronic Maintenance Associates (EMA Inc) I had a pretty clear and simple business model. Namely:

Become the warranty service center in the Southeast for a number of electronic motor drive manufactures.

Do an excellent job for them.

Use the warranty service as an entre’ into the facility, and expand the business.

It worked very well..  I picked up good and profitable business.

BUT..  that market changed.  We still to this day do warranty service for manufacturers, but with the motor drives becoming less expensive and more reliable, that business model began to lose its appeal.  IF we were still depending on that, I think we’d be out of business.   Everyone has to roll with the punches.

Stanford Professor Charles O’Reilly says that companies and organizations need to have organizational ambidexterity.  Defined, as the ability to keep your existing business going, while adapting to new opportunities and challenges.

That’s not as easy as it sounds.  Abrupt change can destroy a company for a number of reasons.   You can run off loyal customers, demoralize your people, and lose all economies of scale with your systems.  I didn’t tell all of my warranty customers to get lost, we continued to serve that market, even as it was declining.  We gradually moved into a different model.

That’s what O’Reilly means..  by organizational ambidexterity. Your successful strategy in the past, may in fact be the wrong thing to do in the future, but if you’re still getting business from it now, you have to keep it going for the present.  Your other hand has to work on the future.

Innovation is often perceived as a threat to an existing organization.  I’ve seen this not only in business, but in churches.  Within your organization employees are likely to feel threatened.

That means that as the leader, you have to do what most of you hate most..    process.   You must communicate the need for the change. (and by the way, don’t make this up, do your homework)

Shoving change down people’s throats is a recipe for disaster. Change may be completely necessary; just be sure your folks understand and embrace it.

There are many examples of companies that lost their edge by failing to respond to change.

Blockbuster was the ubiquitous video rental company. You saw them everywhere, and most people you knew used them.  They had a great business.  But, they misunderstood the threat that Netflix, Redbox, and video on demand posed.   Had they understood it, they were well positioned to respond and keep their market.

But that’s the trick isn’t it?  They didn’t roll with the punch and change; they stood flat footed and got knocked out.

How about companies that did change?  Did you know, for instance, that Nokia is the world’s largest cell phone manufacturer?  Did you know that Nokia was founded as a pulp and paper company?  Talk about changing!

Dupont began manufacturing gun powder, but they rightly saw themselves as a chemical company.  Because of that we have polyester, teflon, and many other great products.

Paypal began as a cryptography company. After years of trial and error, they emerged as the default online payment system for millions of people.  Stanford’s O’Reilly encourages companies to do small “experiments” as a response to market changes.  Not everything works.   But, had Paypal continued as a cryptography company, probably none of you would know their name.

Changes come in many ways.  If you’re in a maturing market, then you should expect the market to provide lower margins.  As a general rule of business, hi volume markets  = low margins, and low volume markets  = high margins.  The guy selling Fords will sell more units than the guy selling Lamborghini cars, but the latter will have much higher margins.

If you are in a hi volume low margin business, and intend to stay there, then you must adapt your business model.

Roll with the punches!

Eddie

Eddie Mayfield is the host of Driven to Business, heard 11 AM every Saturday on Atlanta’s business radio, Biz 1190.  The show is streamed live on biz1190.com and podcast on eddiemayfield.com and Itunes.