This weekend I read a story on Grantland about the history of Nintendo.
It was a great story that goes quickly through the details about Nintendo’s rise to power in the video game world while shedding light on the key players in the organization.
It’s pretty amazing to think that a company from Japan could have such an influence in the US. It’s even more amazing when you learn that Nintendo started making trading cards or playing cards back in the 1800s. They did that for a half decade until a young family member took over and knew he had to take the company in a new direction.
After multiple failures of trying new things including “love hotels” in Japan, the CEO starting investing heavily in technology and the company would go on to become big in arcade games and then in home gaming systems.
As a kid I couldn’t have been more excited when I got a Super Nintendo Entertainment System for Christmas one year. To realize now the changes the company made to even get to that point it’s crazy.
It makes you realize that the companies that last through generations are the ones that successfully see changing coming in their current industry. Not only do they see it coming they know that if they want to stay in business that they have to find something else to do.
1. The Market Is Shrinking
In the story about Nintendo, the young CEO went to America to learn about the market for their card business. When he got there he realized that the market was smaller than in Japan and that the market was likely shrinking.
This happens in every industry. Something comes on strong and over time it wanes. It’s just the way life works.
However, just because your market is shrinking doesn’t mean you have to change overnight. If you notice the sign early you can still make plenty of profit as you look for other ways to make money in the future.
2. Profit Margin Is Shrinking
A number of things can cut into your profit margin. Usually as your business is growing you’ll gain profit margin. So it’s pretty easy to spot when things are going in the other direction.
If your profit margin is shrinking, especially due to outside causes, it’s a sign that this industry may not be viable in the future. Competition could be driving prices up. Vendors might be raising their prices.
The same applies here, though. Identify it. Continue doing what you can while looking for ways to move into something else.
3. Customer Acquisition Is Getting More Expensive
Low cost customer acquisition is the key to growth. If you can find a way to bring in new customers for a low cost you’ll be able to grow and grow. If those acquisition channels start getting more expensive, though, it’s time to either find new acquisition channels or look at different industries.
4. Big Companies Moving Into Similar Industries With New Models
This has happened forever. Big companies see little companies doing great things. Some of those little companies become big companies, but once in a while a big player in the industry is able to react fast and crush the little company before it gets off the ground.
Or the big company may be sitting on the sideline letting new companies invent a new industry. Then the big company steps in and does something that makes the others obsolete.
Google has done this a few times. One company might charge for certain online content or a service for finding information online. Google can figure it out, give the service away for free and use its advertising model to make money.
If you see this potential threat it’s good to have a backup plan.
5. New Technology Offers Alternative (And Preferred) Options
Technology is great, but for businesses it can mean going out of business.
An interesting part in Apple’s recent history was when the iPhone came out. Apple knew that the iPhone would cannibalize iPod sales, but they also knew that if they didn’t make the move that someone else would.
Sometimes new technology comes along that is more appealing to consumers. It might not happen right away, but it can spell the end of your run at the top. If you can identify the new tech, however, you can be the one that changes things.
6. Threatening Regulation
Regulation can always harm businesses. Sometimes it’s good for the big businesses that can handle the costs. Because regulation can force the smaller companies to close up and the bigger companies are there to take on the demand.
Regulation changes acquisition and costs. It happens in nearly every industry that gets big. Off the top of my head I think of the FAA in the aviation industry. You don’t see many new airline startups anymore.
7. Growing Public Backlash
We’re starting to see this a little bit in the NFL. It’s hard to believe because the NFL is so huge and so popular. It’s not going anywhere soon, but how long will the public watch people seriously injury themselves to the point of paralysis and dementia?
If your industry is starting to see some backlash from the public it’s a real good time to start looking for other alternatives. Again, it doesn’t usually happen overnight so don’t panic.
The NFL isn’t going anywhere soon. There is plenty of money to be made as the backlash grows, but it usually reaches a breaking point.
Bullets First. Missiles Second.
In the book, Great By Choice, there is discussion about companies that effectively change their course. They don’t find one thing and invest all their money into it however. Well, some companies do that and they almost always fail.
The companies, like Nintendo, that succeed in changing course are the ones that fire bullets first. They spend some money on multiple different strategies and hunches. They prepare for those bullets to fail most of the time knowing that they only need one to work out.
And once they find one that shows promise then they invest all they have into it.
If your industry is showing signs of change it’s time to start firing bullets. Use the checks above to figure out if the time to start is now.