 |
|
|
|
|
|
|
 |
 |
 |
 |
 |
 |
|
 |
Tips from History – After the “Bubble” Opportunities Post-Bubble success stories show patterns of business success. While none of us has a crystal ball to see the future, we can learn from history. In Pop! Why Bubbles Are Great for the Economy (Collins 2007), Daniel Gross analyzes a number of “Investment Bubbles” in the 19th and 20th century. He concludes that the real opportunities are after the bubble bursts. The pattern is clear. First, there’s an exciting new technology. Then there’s a frenetic period of growth, which leads to overbuilding, intense competition and falling prices, followed by a period of consolidation and bankruptcy. After the bubble bursts, companies prosper by using the infrastructure created during the Bubble to deliver new products and services. For example: Telegraphs: Bubble: Three telegraphs connected Boston and NYC in the 1840s. Post-Bubble success stories: Dun & Bradstreet was able to build a lasting business by providing content (credit rating info) over that infrastructure. Thomas Edison invented the “stock ticker,” which delivered financial data more effectively. Western Union provided funds transfer services. Railroads: Bubble: Half a dozen transcontinental railroads were built after the Civil War and intense competition drove the price of freight from $1.93 per ton-mile in 1867 to 84 cents in 1895. Post-Bubble success stories: Retail mail order companies -- Montgomery Wards and Sears used the railroads to expand catalogue sales. Food processors -- Swift began a national meat packing and distribution company using refrigerated rail cars, followed by Armour & Company, Campbell’s soup, Pillsbury flour, Heinz ketchup and Coca Cola, etc. Fiber Optic Cable: Bubble: The telecom industry laid enormous amounts of fiber optic cable in the 1990s and Worldcom and Global Crossing paid the price of over expansion. Post-Bubble success stories: Google, YouTube, Skype, Second Life … use the lower-cost bandwidth to deliver new and innovative products and services. Alternative Energy Companies: Bubble: A current example is Alternative Energy Companies. We are seeing a frenetic period of expansion. History tells us that many of these companies are likely to fail. As the companies fight for market share, prices will drop and more consumers will be attracted. Post-Bubble success stories? Time will tell. According to Mr. Gross, while the manufacturers struggle, the real winners may well be those who provide related products and services – less capital intensive products – such as “kits” that allow existing automobiles to run on ethanol, or software that enables a home to switch between generating electricity from a small wind turbine and a solar panel. The key point is that it’s hard to survive as a participant in the Bubble – the period of overbuilding capacity and intense competition. To survive the Bubble, you need to avoid direct competition with deeper-pockets competitors by focusing on niches and providing value added services. To position your company for the Post-Bubble period, stay alert for opportunities to leverage the Post-Bubble infrastructure to expand your business. As Mr. Gross’s book clearly demonstrates, “When it comes to business, history does have a way of repeating itself.” Is your company positioned for the changing marketplace? A strategic assessment with an experienced and objective advisor can help you evaluate opportunities and position your business for success. Jean D. Sifleet, Esq., CPA P.S. My business is built on referrals. It’s always a pleasure to receive a phone call that starts with, “I was referred to you by ______________.” Thanks for thinking of me when you hear someone has a business issue. Feel free to forward this eNews to a friend or colleague who you think would benefit from the information. eNews
Subscribe: |
