The world of business changes constantly. With the advent of new technologies, businesses can change overnight. Often, you must remain adaptive and limber to keep up. You must take risks. This can be difficult for smaller businesses and older companies to achieve, but can often be pivotal to success.
For example, this list from US News covers 10 businesses that failed to adapt and have lost their edge. That’s not to say that Sony doesn’t still exist, but what was once the dominant maker of audio and video technology in the world failed to adapt with the physical-to-digital revolution and now companies like Samsung and Apple, who have adapted not just to digital, but to incorporating them into smartphones, have left Sony in the dust. On the other hand, this list from Investopedia.com outlines five companies that took charge of adapting, and have excelled at it. DuPont, for example, was initially in the gunpowder business, and supplied half the Union’s gunpowder during the civil war. But instead of getting left behind as technology changed and less gunpowder was needed, they adapted. They are now one of the world’s largest chemical companies, inventing the first polyesters, nylon, Teflon and the first phenothiazine insecticide, and Nomex, the fire-retardant polymer used by firefighters worldwide. They are still devote an incredible amount of resources to R&D instead of resting on the laurels of success.
But what I’m really here to talk about is not change in business. Not an adapt-or-die mentality. I want to talk about how in spite of all of the radical change in the world of business, the basic principles of business strategy have not changed even a tiny bit. Andrew Campbell can outline them in less than 200 words:
- “If you want to earn above the cost of capital (if you want to create value), you must get a higher return on your efforts than the average competitor.
- To get a higher return than the average competitor, you must have an advantage or you must compete in an unusually attractive sector.
- There are only two ways to get an advantage. Your prices must be higher or your costs, including the cost of your balance sheet and the cost of taxes, must be lower.
- Unusually attractive sectors are those where the forces of competition are muted. Usually this is because there are few competitors. But there are other reasons, such as legislation or demand growing faster than supply.”
As long as these rules apply, it can be as lucrative to optimize your current business strategy to meet the above needs as it is to blindly look for the new technology or technique that might fail to attempt to stay in front of the pack. As Mr. Campbell says: “Your challenge in the face of stiff competition is not to rewrite his theory, but to be creative about applying it. To do that, you need to come up with some clever offer that entices customers to pay higher prices or some operational innovation that lowers costs, or find a new market where there aren’t many competitors.”