How the Mighty Can Fall
Wal-Mart did not event discounting, Woolworth’s did in the 1800’s. However, Woolworth’s got out-Woolworthed by Kmart and now Kmart has been out-Kmarted by Wal-Mart. My bet is that Wal-Mart could get out-Wal-Marted if they aren’t careful.
Why did these industry giants fall? It’s simple: they failed to constantly improve their business model and a competitor entered the market with a superior model.
Don’t let this happen to you. A business model doesn’t have to be a mystical, incomprehensible masterpiece. However, a great business model is not created in five minutes on the back of a napkin.
For too long, business owners have focused on everything BUT their business model. Forget the business plans. A business plan tells how you will execute your business model. If your model is right, you wont need to worry about execution. And if your model isn't right, it will not matter how well you plan or execute.
As you can see, Blockbuster’s average revenue growth from 2005-2008 was -2.2% while Netflix’s was +26%. These companies are in exactly the same business: providing videos in the form of DVDs and Blu-Ray’s to consumers.
During this same period, Blockbuster’s average annual profit was -$218.75 million which Netflix showed an average profit of $60.25 million. Oh, how the mighty can fall if they fail to change their business model. Blockbuster once controlled nearly 80% of the rental market and now controls under 45%.
The good news is that we can learn from the mistakes of Blockbuster. We need to be proactive in morphing our business model. When we proactively modify and improve our model, we change the market, the market does change on us.
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