What Can You Do When Your Company Is Shrinking?

When the quarterly figures have come in, and they show that yet again sales have dropped, you get that shrinking feeling. But what to do? Here are a few things to consider:

Look around in your industry to see if you can snap up some small growing businesses. Often the are businesses that are sitting on patents and products that are new and exciting, but which they can’t really exploit due to their size or because the management is not that good. Your business on the other hand should be able to make the most of these new products, which will help fill in gaps in your existing product line. An example of this strategy in action is Microsoft, which buys about six small businesses a year on average. For instance, in the mid 1990’s when Bill Gates suddenly became aware of the internet, Microsoft purchased Hotmail as it needed an email service to be part of its internet portal. Recently they acquired Skype, as they perceive the VOIP market to be important to their customers. It’s this constant acquisition that has kept Microsoft from going stale.

Another thing you can try is developing new products in-house. Usually shrinking sales are an indicator of a product reaching the end of its life – you may be the market leader, but markets become saturated because customers have moved on. One way to deal with this natural attrition is to make sure you have a constant stream of new products coming online to replace the old ones. An example of a company that does this is Procter and Gamble. Their core product is washing power but this is difficult to grow as it has reached its natural limits – even Procter and Gamble can’t persuade people to change their clothes three times a day and hence do three times their normal laundry load!

They’ve solved this by launching a stream of related products, hoping to create new markets. Developing new products can be cheaper than acquiring small businesses if you already have an established research and development department in your company.

If your existing market is saturated, another thing to try is selling your product in other markets where competition is less fierce, or even non-existent. This is the strategy adopted by McDonald’s. They can’t really pack any more outlets per square mile in the United States without cannibalizing the profits of existing franchises, but they can expand into other countries. Their greatest successes have come from opening outlets in countries where there are no burger restaurants and hence no competition for McDonald’s brand of fast-food.

Finally, you can try considering joint-ventures with other companies in your industry. That way you can pool research and development costs and achieve economies of scale. One downside of joint ventures is that you have to share control, and executives in each company will often thwart the success of the venture because they don’t want to cede turf. Joint Ventures that are successful usually end up as full-scale mergers.

Filed in: Blog, Entrepreneurship

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