Creative destruction: the cost of progress

“Creative destruction” means that new technologies render existing products obsolete. If you don’t engage in creative destruction, your competitors will, ultimately shrinking or destroying the markets for your existing products.

Creative destruction comes at a cost. Sometimes your workers can’t handle the new technologies, and must be replaced. Often the long-term benefits of new technologies come at the expense of the short-term profits from existing products.

However you choose to deal with creative destruction, you can’t ignore it. It is inevitable in many businesses. To remain strong, a company must manage change successfully.

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Why Kodak died

I grew up in Rochester, New York, home of Kodak. Kodak was a huge force in Rochester. It was a city all by itself, with over a hundred buildings. It was said that one out of each family in Rochester was employed by the company. I worked there myself, for a time, during college summer vacation.

Now Kodak has gone belly up. And this is why:

Though they were the biggest, most successful company in the photography industry, they failed to maintain their leadership role. They fell victim to incumbent inertia. Digital technology was rendering traditional film photography obsolete, but Kodak didn’t believe it would last.

They were wrong.

They simply did not perceive the threat of digital as real. They didn’t respond to digital because they thought they didn’t have to. They were shortsighted, thinking that their current markets would last indefinitely. They refused to look to the future. They didn’t give up their existing product lines, reasoning they would be foolish to displace proven winners in favor of technology that wasn’t yet proven by the marketplace. It wasn’t broke, they thought, so why fix it?

They refused to change with the times.

Not every new idea is a good one. But you owe it to your company, and yourself, to watch for new ideas, and to give each careful consideration. Don’t let the world get ahead of you. “If it ain’t broke, don’t fix it” is a dangerous business approach. If your marketing breaks, it may be too late to fix it.

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Business start-up: 10 important things NOT to do

1) Don’t make little plans. If you plan to establish a small business, that’s what you will end up with—and nothing more. Make a plan that recognizes all the possibilities of your new business, and serves as a road map for growth. You may not achieve everything you plan, but you will give yourself something worthwhile to shoot for—and more room to succeed.

2) Don’t forget the negatives. When you’re fired up about starting your own business, the tendency is to dwell on all the pluses and ignore the negatives. Be objective and realistic, especially about your sales forecasts. Stop selling yourself on your own ideas.

3) Don’t let setbacks throw you. It is the rare enterprise that runs smoothly, especially in the beginning. Don’t let miscalculations, disappointments, or bad luck keep you from moving toward your objectives. Have contingency plans that enable you to keep going.

4) Don’t set prices too low. Margins that are too small make it extremely difficult to show a decent bottom line. It’s virtually impossible for a new business of any kind to go head-to-head with discounters. Understand what clients are willing to pay for superior services and products and price them accordingly. If you have the lowest prices in your market, you may soon be in trouble.

5) Don’t let your accountant run your business. You need a smart accountant, but you’re the one who must make the business decisions. To do that wisely, you must understand where the dollars are coming from, and where they are going. It’s vital that you understand basic bookkeeping and accounting procedures if you’re going to be an effective manager.

6) Don’t live on your cash flow; live on your profits. Don’t be fooled into thinking that the daily inflow of cash from your business is available for you to live on. Most of it is needed for suppliers, rent, payroll, insurance, telephone, and dozens of other business expenses. Once you begin dipping into your operating capital to cover your personal needs, your business’s days are numbered.

7) Don’t spend unnecessarily. Watch every dollar, especially in the beginning. Money is the lifeblood of your enterprise, and it’s your responsibility as the top manager to assure that the business has the operating capital it needs to attract customers and make sales. If you can’t somehow relate a proposed expenditure to one or both of those objectives, don’t do it.

8 ) Don’t choose a poor business location. Of course you don’t want to overspend on rent, but a bad location will make it difficult to get customers through your door. Negotiate for the best location you can afford.

9) Don’t expect your costs to remain constant. Costs never do. Plan for ongoing increases in every area of your business.

10) Don’t ever jeopardize your reputation. There is simply no substitute for a good reputation. It can carry you through in the best of times—and the worst. If you do somehow develop a poor reputation, it can take years, or a lifetime, to overcome the difficulties it causes and to set it right. In a business, you are continually selling yourself and your own personal credibility.

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