Are you in a Sunset Industry business? What do you do?
The last couple of years, I met quite a few business owners who were pessimistic about their businesses. Characterising themselves as sunset industry business owners, they lamented the fact that sales are dropping gradually, customers have moved on to better or other products or services and/or their children are not interested in taking over their businesses. Their plan? They would work for as long as they are able and then shuttered off their business for good.
I am surprised that their children are not interested. Given the kind of disruptive times we are in, where employment is no longer lifelong and outsourcing is a fact of life. The fact is, a number of corporations have already encouraged their employees to set up their own services company and then get re-employed by the corporations again but now as independent contractors. This helped such corporations to keep costs down, and allow entrepreneurs to have a sustainable business as they may offer their services to their previous employer as well as to other firms that can use their services.
There are other possibilities. Bear in mind that you can diversify the business to other niches or to a totally new industry using the existing business as a pivot. I have seen a few young people who have done this; taking over their parents’ businesses and transform them into something else by entering into another industry. They have done quite well doing this, but that is another story.
Coming back to the sunset industry bit. It is my view that no business is a sunset industry business. Perhaps the industry is, but not a business. In the past, when change is imperceptibly slow, you can start a business and work a lifetime and bequeath it to your children. But this is a time of rapidly improving technology and a fast pace of change brought about by technological changes which bring the world closer together. This is the age of transformation, or of disruption, depending on whether you are the agent of change or its victims. If a business fail to catch up with change or fail to adapt fast enough, it will fail and litter the wayside with its remains. To put it bluntly, sunset industry businesses are what they are because of a failure of adaptation.
So, can a sunset industry business transform itself and become viable again? To understand how to do this, I like to reframe the problem that will allow such businesses to make the transition.
When such business was first started years ago, the then business owner has a business model in his head, which allow him to think of providing value* to his potential customers. The value he created for the customer then is some product/service which the customer needs or wants.
This process of value creation by the business for the customer is possible when the business makes use of key resources and engaged in key activities to do so. Of course, the business owner make use of financial resources which supports the cost structure, while the output of the process of value creation for customers results in revenue.
Key resources also known as core assets include material resources which may be obtainable from suppliers, tools and other equipment which can be used to provide services and intellectual property. They are used by the business to create value when the business engages in activities employing these assets.
Key activities are the activities that are needed to attract input providers (which will increase the core assets needed) and customers who will buy the products/services that are the result of the value creation the business is engaged in.
With progress and change, either the key resources or key activities of the model will change in response to changes in customer behaviour. Depending on the rate of change, the key resources (core assets) and/or key activities (core activities) are either threatened or not threatened. The following table illustrates what kind of change is expected given the fact that both core activities and /or core assets are threatened.
It is unlikely that current sunset industries are in the quadrant that both assets and activities are threatened, ie radical change is taking place. This is commonly found in IT sectors where assets and activities changed rapidly and whole corporations can disappear.
Therefore, it is my opinion that many so-called sunset industry businesses can survive, but they need to change their assets or their activities in order to remain viable. An example or two will make this clear.
A bookbinding company found that their traditional customers had all but disappeared when books are increasingly available in digital format. (Intermediating Change in the above table) They retained their skills (core assets) but change their business model to transform it into an arts and crafts business, where they make artisan diaries and notebooks and start a hobbyists movement. There is a market for it, and they thrive.
For an industry that retained their core activities i.e. in the quadrant for Creative Change, consider a printing company that specialised in printing diaries that followed their customers but instead of supplying them with printed diaries, they supply them online diaries and calendar apps with specific features. Their core assets have changed but not their core activities.
If the core activities and core assets of your business are not threatened, you are in the quadrant for Progressive Change. You need to change but change is slow. This will be typical of infrastructure companies as well as oil and gas for example.
The feasibility of such changes in a business model is dependent on the cost structure of the new model and whether there are enough funds to support it, and whether the projected revenue can be realised.
So by reframing the issue in terms of a business model, we can decide what kind of adaptation we need to make to maintain a viable but different business model. That is adaptation and growth.
If you are concerned about how your business ought to change to adapt, contact us for a conversation as to how you should transform your business model.
*italics denote elements of the business model, words in bold the accepted terminology.