In differential calculus, an inflection point refers to the place on a line at which the direction of the line’s curvature shifts. I hated calculus, but the term applies well to certain business situations. The concept was first presented to me by University of Scranton management professor Len Tischler during a lecture on business policy and strategy. The idea is that every so often within a given industry, events occur (technological advances, process innovations, political policies, economic phenomena) that can cause the industry to drastically change at a fundamental level.
I noticed a great example of this the other day. I was passing Bravo Video, my town’s local video rental store, when I noticed they were having a going out of business sale. While it saddened me to see a longtime local establishment close its doors, it certainly made sense. Several new business models that take much of the hassle and cost out of renting have revolutionized the media rental industry. Offering cut-rate prices, no late-fees, and, in some cases, automated delivery, these new models are able to run circles around the traditional media rental business model. Between direct downloads, on-demand cable, Netflix, and the supermarket video vending machines (which even my tech-illiterate mother can use), the industry has left the majority of in-store rental establishments reeling.
In this month’s Inc. Magazine, I also found an interesting article about a point of inflection within the music industry and the creative way a record store completely re-engineered its business model in order to survive. Founded in 1994, Millennium Music operated profitably for years as a “thinking person’s music store”. According to the article, Millennium became a cultural hub and type of community gathering place by stocking hard-to-find records and hosting live bands and book-readings. Inc. reports that at its pinnacle, Millennium had been growing at an annual rate of 20%, employed over 100 people, and generated yearly revenues of nearly 10 million. Then the industry reached an inflection point.
New MP3 technology and business models like iTunes and Rhapsody stole so much market share from record stores, that smaller organizations like Millennium could not remain profitable. Looking back on his company’s trials owner Kent Wagner remarked, “We knew the industry was in decline, but we thought we were different. At a later point in the article, he sums up Millennium’s seven year stretch of double-digit losses when he says, “When you spend so much of your energy fighting the obvious, you can lose focus of the big picture.”
Well in 2006 Wagner and his marketing director Clay Woodson began to see the big picture. They launched a site that allowed users to exchange used CD’s for iPods. The site, called FeedYourPlayer.com, allowed Millennium to amass large quantities of used music at incredibly low costs to be resold online. After the only remaining Millennium music store posted a $1 million loss, Wagner made the decision to close up shop and divert all of Millennium’s resources to its online model. The new model of FeedYourPlayer, called AbundaTrade, uses sophisticated software to offer fair online market value for used CD’s (in the form of electronics, TV’s, or small amounts of cash) and to scan the internet to develop pricing that undercuts competitors like Amzaon.com. Now, according to the article, Abundatrade is receiving about 15,000 used products a week and is on pace to hit $3 million in revenue for 2009.
So what should we take from these stories? We should take an introspective look at our own industries and our companies’ ability to evolve, innovate, and adapt. In a great quote from the movie Fight Club, Edward Norton says, “On a long enough timetable everyone’s survival rate drops to zero.” On a long enough timetable every industry will experience a game changing point of inflection. Managers need to be proactive and always on the lookout for ways to “see around the corners”. When a new development occurs that may seem threatening or novel, we cannot ignore it and hope it will go away. No company is invincible and no industry is unshakable. Management must have the foresight to recognize these developments and find a way to either adapt to survive or restructure to capitalize.
I noticed a great example of this the other day. I was passing Bravo Video, my town’s local video rental store, when I noticed they were having a going out of business sale. While it saddened me to see a longtime local establishment close its doors, it certainly made sense. Several new business models that take much of the hassle and cost out of renting have revolutionized the media rental industry. Offering cut-rate prices, no late-fees, and, in some cases, automated delivery, these new models are able to run circles around the traditional media rental business model. Between direct downloads, on-demand cable, Netflix, and the supermarket video vending machines (which even my tech-illiterate mother can use), the industry has left the majority of in-store rental establishments reeling.
In this month’s Inc. Magazine, I also found an interesting article about a point of inflection within the music industry and the creative way a record store completely re-engineered its business model in order to survive. Founded in 1994, Millennium Music operated profitably for years as a “thinking person’s music store”. According to the article, Millennium became a cultural hub and type of community gathering place by stocking hard-to-find records and hosting live bands and book-readings. Inc. reports that at its pinnacle, Millennium had been growing at an annual rate of 20%, employed over 100 people, and generated yearly revenues of nearly 10 million. Then the industry reached an inflection point.
New MP3 technology and business models like iTunes and Rhapsody stole so much market share from record stores, that smaller organizations like Millennium could not remain profitable. Looking back on his company’s trials owner Kent Wagner remarked, “We knew the industry was in decline, but we thought we were different. At a later point in the article, he sums up Millennium’s seven year stretch of double-digit losses when he says, “When you spend so much of your energy fighting the obvious, you can lose focus of the big picture.”
Well in 2006 Wagner and his marketing director Clay Woodson began to see the big picture. They launched a site that allowed users to exchange used CD’s for iPods. The site, called FeedYourPlayer.com, allowed Millennium to amass large quantities of used music at incredibly low costs to be resold online. After the only remaining Millennium music store posted a $1 million loss, Wagner made the decision to close up shop and divert all of Millennium’s resources to its online model. The new model of FeedYourPlayer, called AbundaTrade, uses sophisticated software to offer fair online market value for used CD’s (in the form of electronics, TV’s, or small amounts of cash) and to scan the internet to develop pricing that undercuts competitors like Amzaon.com. Now, according to the article, Abundatrade is receiving about 15,000 used products a week and is on pace to hit $3 million in revenue for 2009.
So what should we take from these stories? We should take an introspective look at our own industries and our companies’ ability to evolve, innovate, and adapt. In a great quote from the movie Fight Club, Edward Norton says, “On a long enough timetable everyone’s survival rate drops to zero.” On a long enough timetable every industry will experience a game changing point of inflection. Managers need to be proactive and always on the lookout for ways to “see around the corners”. When a new development occurs that may seem threatening or novel, we cannot ignore it and hope it will go away. No company is invincible and no industry is unshakable. Management must have the foresight to recognize these developments and find a way to either adapt to survive or restructure to capitalize.
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