buggy whipEvery market will see decline at some point, just ask a buggy whip maker. If that reference is way too old for you, ask a desktop PC manufacturer – comments, Michael Dell? More than likely you will experience decline in some market throughout your career. But as Michael Dell might tell you, decline is just a type of growth, albeit in the wrong direction, and there are ways for you to mitigate the detrimental effects of market decline in your business. Even to start ups, finding that the friends and family sales are not the same as finding product-market fit looks a lot like a declining market. Have hope. While painful to your business, you can recover from a declining market.

Be vigilant, and when market decline befalls your business, focus on these three activities:

  • ·         Be thrifty, but don’t penalize your customers
  • ·         Check your growth strategies
  • ·         Seek opportunity

Be thrifty, but don’t penalize your customers. The worst thing you can do when your market starts to shrink is to punish the ones who are keeping you in business. If you price out your customers while trying to hold top-line revenue or demand purchasing agreements that your customers just can’t afford to make in a changing market, you will only drive them away more quickly. Your customers are not to blame for the world changing around them and they are not responsible for sustaining your business beyond its viability. Just as new automobile owners could not be blamed for having no more use for buggy whips, it is not your customers’ fault that your market has changed. Instead, work with your existing customers to find ways to meet their needs while maintaining your business. At the very worst you will find that you can no longer satisfy your customer base and your business needs new direction.

Check your growth strategies. Decline is growth, so check the strategies that you use for positive growth. These include both internal and external strategies.

Internal Strategies

Focus and Lead

Tightening focus onto a particular market segment and then putting all of your resources into leading, to the point of owning, that segment can be a great strategy. While the overall market may shrink, you may be able to grow your business by driving out competitors and re-energizing the segment.

Find a New Niche

Like focusing on an existing segment, a new market niche that is un-served or under-served may provide the revenue required to sustain your business through the downturn or provide a new direction. For example if your company makes household refrigerators, a new niche market might be making refrigerators for pharmaceutical companies to store research samples.

Adjacent Market

Moving to an adjacent market is also like focusing or finding a new niche, but likely requires more extensive research, business development and operational change. For example if you are a manufacturer of cold-formed pins for LED devices, you may have the equipment and expertise to engage markets for medical probes.

Move Up the Value Chain

Moving up the value chain is a classic growth strategy which can have application in a declining market. Provide more of what your customer needs, in product or services, and maintain, even grow, your market. A great example is the networking semiconductor market in the early 2000s. When the Internet bubble burst, AT&T became more focused on services, leaving companies like Lucent Technologies to add more functional value to their systems to maintain their market. In turn, chip makers had to become sub-system solution providers to Lucent, including software development, to stay alive. The downside to moving up the value chain can be the investment, financial and in intellectual resources, required to make the change.

Move from Product to Service

Many companies move from physical product to providing services as their product market declines. Often a business is started around a product and then finds that a significant service component is required to operate the business and that the value is really in the service. By eliminating the product, or purchasing it off-the-shelf, significant savings can make the business of providing the service viable, even in a declining market for the product. Countless examples of this can be found under the umbrella of “information technology” where the product became commodity but the knowhow to install and operate it is a required capability for network use.

External Strategies

Sell, Merge or Partner

These could be expanded, but the idea is that your competitor may be your friend in a declining market. Your best option could be to outright sell your business or merge or partner (including joint venture) with others in your industry to make your business viable in a declining market. In most cases, the rationale for any of these moves will be to effect one of the internal strategies, but on a grander scale.

Open Source or Standardize

These are two sides of the same coin and they are often overlooked. Open sourcing a product is a strategy that allows for company focus on the core product while enabling a broader market and more robust core through third party additions. The net effect is to entrench the product in the market and build an ecosystem around it, making it “essential” and slowing or reversing decline. Standards attempt to drive the same essentially by making a process or technology a requirement. The Wifi or Ethernet through which your devices are connected to the Internet are standardized. Through standardization a market may be secured for a long time. The downside of standardization is that it may lead to commoditization and it doesn't protect from innovation and replacement.

Seek opportunity. Beyond the classic growth strategies there will always be options for business. Think entrepreneurially. Think about the fundamentals of your business and where you have (or had) a sustainable competitive advantage and how the products or capabilities that gave you an advantage might be reapplied within your market or in a new market. Really, if your market is in steep decline do you want to stick with it? Going back to the desktop computer example, think of Apple. They lost the lead in desktop computing and took their technology, vision and knowhow and applied it to their customers’ digital lifestyle and won big with the iPod and iPhone, all while continuing to serve a key computing segment.

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