Retailing icon Radio Shack declared bankruptcy early this February despite a long and storied history of success. Founded 94 years ago, the company grew into a chain of 7,000 stores by serving hobbyists and bringing innovative products to market. As the techies’ world shifted from ham radios to computing, Radio Shack introduced one of the first pre-assembled personal computers, the TRS-80, in 1977. That machine ran on an operating system written by Bill Gates, had 4K of RAM, and sold for $599. In 1983, well before competitors like IBM introduced portable computers, Radio Shack offered its Model 100 laptop, which sold over six million worldwide.
From the 70s through the 90s Radio Shack’s products were considered leading edge. Its stock price hit $76 in 1999. Then along came competitors like mail-order giant Dell and the ensuing loss of PC market share. Divesting its computer manufacturing operation in the early 90s, the company fought back with numerous rebranding efforts and by adding smart phones among other consumer electronics to its line. Left in the lurch were the do-it-yourself techies who were the cornerstone of the company’s prior profitability. Instead of shopping in stores staffed with knowledgeable fellow hobbyists, their needs for components were available only by mail order. Radio Shack lost relevancy for its core customer.
Radio Shack is not alone in the museum of failed enterprises. Of the companies listed on the initial Fortune 500 ranking issued in 1955, 88 percent have fallen off the roll. Radio Shack’s fate is proof positive that bad things can happen to good companies. Most owed their existence to once successful product or service innovation. Most failed because they did not keep up with a rapidly changing marketplace.
What happened to companies like Radio Shack? Taken singly or in combination, several slow-moving events occurred:
- Their markets changed as customers’ perception of value shift – Radio Shack’s success was built on their customers’ ample leisure time, a feature of life in the 50s and 60s that began disappearing in the 70s.
- Their business model became obsolete – Major U.S. airlines lost their customers to regional carriers like Southwest who offered no-frills air travel at a lower price.
- Their processes failed to deliver the new perception of value – Low cost steel maker Nucor with their product focus and innovative use of scrap steel stole market share from integrated producers like U.S. Steel.
- Their management rejected the need to change and adapt to the new market realities – In the 1970s U.S. car makers failed to recognize the threat of Japanese competition.
Companies fail when they don’t concentrate on meeting their customers’ needs. Business thought leader Theodore Levitt called that condition marketing myopia.
So what can senior managers and owners do to avoid the near-sightedness that can seal their fate?
- Beware new competitors on the edge of your radarscope – The foremost sign of an antiquated business model is the appearance of a new, better model that creates and delivers value differently. Think Amazon.com.
- Watch your leading-edge customers and their customers – Those who are fast adopters of new processes, materials and the like are most prone to embrace the latest new opportunities in your market.
- Monitor your cost structure – Simple metrics like sales and profits per employee can warn of increased cost. It’s hard to stave off competitors, satisfy customers, and make a profit if your costs are out of line.
- Create a continuing sense of urgency – The need for speed should be proactive so that change can occur in advance. Don’t be surprised by the advent of new competitors, products, and services in your market. Get ahead of the wave.
- Question the ‘way things are done around here’ – When strict adherence to established processes becomes the status quo, better methods are never tried. When change is needed, don’t get stuck looking in the rear view mirror fighting yesterday’s battles.
- Seek the realities – To lead a company to success, its leadership must listen to its work force, suppliers, and customers to find the truths that threaten its survival. Acknowledging the facts is the first step in stemming the bleeding.
- Focus at all times on your customer– Remember Drucker’s adage, “The purpose of a business is to create a customer.” Always seek to understand the product and service attributes that your target customers deem important. What’s good for your customer is good for your company.
- Investigate your non-customers – Every company has more non-customers than customers. Find out why non-customers don’t buy from you, what it would take to sell to them, and whether you can do so profitably.
- Anticipate new market paradigms – Demographic change is a key mover of markets. Baby boomers are aging out of their prime buying years and being replaced by the 18- to 36-year-old Millennials whose purchasing preferences are much different. Also don’t forget your company must be a member of the digital economy.
- Make buying your products easy – If you aren’t selling via the internet, you’re going backwards.
- Hire competent people – Employing a staff with experience only in your industry can leave you blind to opportunities and solutions that external hires may have exploited and utilized. It’s always wise to have broad business experience on your team.
John Chambers, CEO of Cisco, recently said, “Every company’s future depends on whether they catch market transitions right.” Smart companies are constantly looking over their shoulder so that they can be at the right place at the right time with the right products when those transitions occur.
Bottom Line: The market is tough and forever evolving. Because of that, you can safely bet that your company’s current business model will eventually become outmoded. The apathy that brings about such circumstance is never intentional. But few managers work hard and continually enough to overcome their company’s potential mortality. Don’t wait for an emergency before responding to keep your company relevant to the market.
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