Why Established Companies Go Out Of Business.


There is one thing that is the number one killer of all organisations. That thing is also the number one killer of all civilizations.

What kind of major water body remains fresh new and clean? The one that is continuously flowing. The moment it becomes  stagnant it begins to stink. The same is true of stagnant people, only those people who continuously grow, continuously adapt tend to continuously succeed.

Stagnancy is basically seeking stability. But let me tell you, stability is mostly a myth. Every single day you are either moving forward or you are moving backwards. Either you are better than what you were yesterday, or you are worse, but you are never completely the same. You either weigh more than what you weighed yesterday or you weigh less but you never completely weigh the same.

The only place where being stable is a good thing is in the hospital!  But let me ask you, would you prefer being stable or would you rather be discharged? So why do you want to be stable?! Seeking stability is the number one reason why organisations die and civilizations die .

I have already shared in previous articles, the story of how Netflix offered itself up for sale for only $50 million  to a company called Blockbuster back in 2000. However Blockbuster turned down Netflix because they thought that online streaming was basically a niche market and that would be never succeed on a mass scale. On the other hand they also thought that people would buy or rent DVDs forever.  Obviously that was not the case and today, Netflix is a multi billion dollar company and Blockbuster is bankrupt.

Just because things are going good today, does not mean they will be good forever, especially if you are not adaptable to change. If you refuse to change and if you refuse to innovate, your value in the market will go down!

Let me give you another example, in 2015, a company called Micromax was the largest Smartphone seller in India.  Today their sales have gone down drastically. What happened to Micromax is something that can happen to any company that completes on very low margins in a very volatile market with no competitive advantage.

A few years ago, smartphones used to be very expensive and even in the Indian market there were some brands that dominated the market, but there was a segment in the market which these brands simply could not service. That segment was exclusively price focused and wanted the lowest price. Micromax decided to service the segment.

Micromax decided that it was going to sell very inexpensive phones and it was going to position itself as an Indian smartphone maker in order to get loyalty from customers.  However, there was a catch. The smart phones manufactured by Micromax were not made in India at all, they were actually made in China. Micromax got generic phones manufactured in China at very low prices, rebranded them and sold them under their brand in India.

For a while the strategy worked very well because even though they were competing on very low margins, they were servicing a very large market. But then the Chinese companies that were actually selling the phones realised that if Micromax and other Indian brands can make such big money in the Indian market while selling their phones, why should they not directly enter the Indian market because they had a competitive advantage anyway. Thus entered  the Chinese brands of Oppo and Vivo and started grabbing share this segment of the market rapidly.

A few more things happened at this time.  A new mobile network called Jio was launched which started offering the consumers large amount of free data at 4G speeds.  Immediately many customers wanted to try out Jio, However this was terrible for Micromax because all of their phones at that time only supported 3G speeds. Many people stopped buying Micromax phones and other Indian brands as a result. This is what happens when you become comfortable and stagnant, you do not even realise when a new thing comes and destroys you, because you are not ahead of the curve.

Furthermore, many people also realised that the phones were actually made in China and not in India, so when an Indian smartphone brand was getting its phones made in China anyway, why not directly buy the Chinese phones with better specs?

Things became horrible with the entry of the Chinese brand Xiaomi.  Xiaomi’s business model was completely different in comparison to all the other Chinese phones.  For the first time, phones with extremely good specifications were being provided for extremely low prices. There was a reason for the same. Xiaomi does not make money on the sale of its mobile phones. It only has a one percent profit margin.  Xiaomi makes money on its internet services as anybody who buys the Xiaomi phones becomes a part of its online network and services are sold there. That is how the company makes most of its profits.

As you can imagine it becomes extremely difficult for a company like Micromax (as well as other Indian brands) to compete in such a situation. Luckily it has realized its errors and is in the process of changing its strategy to stay relevant in the new Market.

So, how are the lessons mentioned  here relevant for your company? First, having a very low margin is just not sustainable unless you have a Huge Competitive advantage. The more volatile your market, the riskier things are. For example, tech and other new rapidly changing industries are very volatile.  Industries such as insurance and banking are less volatile, however it does not mean that innovation doesn’t happen, it is just slower, so it is always good to stay on your feet and stay ahead of the curve.

In order to get the most out of this article, it is suggested you write down answers to two questions.

  1. What are some of the changing trends in your industry?
  2. Ask yourself, how the company can adapt and thrive in changing times?

Remember, disruption can happen at any time from anywhere. The only people and companies that survive are the ones who recognize it, are always prepared, always keep adapting and never ever allow themselves to get stagnant. Is your organization one of them?

To  invite the author Anubhav Srivastava to your organization for training programs on Leadership, Maximizing Performance, Sales etc. or for keynote speeches/consulting enquiries, please email anubhav101@gmail.com or call +919868889977  Furthermore, the same training/consulting can also be offered online.
-The only professional speaker in the world who has produced and directed a top ranked Inspirational Movie on the Psychology of Super Achievers – Carve Your Destiny  (2 million plus viewers)
– Trained participants from over 50 organizations and over 18 Industries.
– Have addressed participants ranging from the the top management of public companies right down to new recruits and students.
-Featured several times in the Indian and UK Media, including BBC Radio.
– Written for top Business Magazines and Websites
-Blog featured as one of the top 100 Productivity Blogs in The World By Feedspot.com
Useful links for reference.
http://anubhavsrivastava.com/about-anubhav/ – For complete profile on past work, client list, testimonials etc.