December 5, 2022

Small Business Advice

Adapt to Survive

Jerry Osteryoung | 1/2/2008

And while the law [of competition] may be sometimes hard for the individual, it is best for the race, because it ensures the survival of the fittest in every department.
— Andrew Carnegie

I was called in to help a small company with four employees. Initially, I was unsure as to the reason for the call, but as most people do not reach out for help unless they are in crisis, I knew their situation must have been serious.

The owners started their business 17 years ago, and for the first ten years, it flourished both in terms of sales and profits. However, over the last seven years, things had eroded, with sales falling by at least ten percent a year and profits declining even faster. Additionally, in the last two years, profits had turned negative, and the owners had been forced to borrow funds from the bank just to keep the operation going. Currently, they are at the limit of their borrowing capacity and have just enough cash flow to last three more months.

After much discussion, the owners realized that they just could not turn the company around fast enough to stave off the painful bankruptcy process. While, clearly, the owners are going to lose a lot, the employees are going to lose as well. On the average, each employee has been with the firm for ten years and, through their willingness to delay their paychecks and to accept reductions in hours worked, they have given so much to keep the company going.

So, what happened to this company? For the first ten years of operation, they enjoyed a market with very little competition and very high margins. Around seven years ago, however, a significant number of new competitors began coming into the market. These competitors offered better products and services, albeit at a higher price. The new companies were able to gain market share through effective advertising and a top notch sales team, neither of which this firm could afford.

When the owners of the company noticed both the presence of competitors in the market and their own declining sales, they refused to act as they had been operating successfully this way for the past ten years. They failed to realize that the market was changing, and they were not.

In fairness, the owners thought that this change was going to be temporary, and that the competitor’s higher prices would eliminate them from the marketplace. However, after seven years, the competitors have become bigger and bigger, and this firm just did not adapt.

In order to adapt, you must be able to recognize any changes in the market. In this case, the owners either did not see what was happening or refused to see it. Except for the owners’ mistaken assumptions, there was no reason why this firm had to fail. Not only did they believe that the new competition could not be sustained, but they also believed that their way of doing business was the correct way. Their stubbornness prevented them from recognizing the changes and acting on what they saw. This was a very sad decision that is now causing so many so much pain.

The market punishes those firms that are not fit (the law of natural selection). You must first recognize that market conditions are changing, and then you must adapt. Those firms that can continually adapt to changing conditions are the ones that will survive.

Now go out and make sure that you are aware of changing trends in your industry and market. With this awareness, you can devise a plan to adapt.

You can do this!

Jerry Osteryoung is the Jim Moran Professor of Entrepreneurship in the College of Business at Florida State University. He is also the Director of the Entrepreneurship Program at FSU and Executive Director of the Jim Moran Institute of Global Entrepreneurship. He can be reached by e-mail at jostery@comcast.net or by phone at 850-644-3372.

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