There are always coming and going trends. Some companies rely on these trends. How can such company react to a shrinking market because the product just isn’t in high demand anymore and isn’t expected to in the foreseeable future.
Is there any way for a company to shrink in a healthy way just like it once grew?
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Of course, you either develop new markets and products to make up for the revenue from the shrinking market or you cut expenses off on the spending side to make up for the lost revenue.
Often paying labor is the most expensive line item on the books, which is why you often hear about layoffs in conjunction with “shrinking” or falling markets, or another word for that: demand.
If companies do not do these things, they can’t pay their bills and they have to close or get bought up by someone who has saved money or capital for these moments in cycles and can buy businesses for less than during good times.
This is why you also hear about mergers and acquisitions often during “shrinking markets”.
Monopolize or diversify.
If the market is shrinking, take it over and raise prices.
Or your business could diversify and shift into other markets.
In some cases, you diversify. Most products require labor, a supply chain and/or vendors that can be adapted to different types of products.
You can also shift to a different business model where your services/goods go from being commodities to luxury items. If you’re making Model T’s in 1915, you’re rolling them off an assembly line for the common (well, slightly richer than common) man. If you’re making Model T’s in 2020, you’re making couture items for the wealthy.
However, a better way to describe a shrinking business is a ‘failing’ business. You will almost inevitably have liabilities that make it impossible to decline gracefully and you’ll discover that everyone connected to your company – employers, suppliers, vendors – will want to desert a sinking ship. Unless you open up new revenue streams, it’s normally better to simply close down when faced with a permanent decline in your business.
It is possible to grow in a shrinking market. I read an article about the Floppy disk king the other day, a line caught my eye:
> Over time, the total number of floppy users has gone down. However, the number of people who provided the product went down even faster.
https://eyeondesign.aiga.org/we-spoke-with-the-last-person-standing-in-the-floppy-disk-business
The other option is diversify. Compare the stories of Fujifilm and Kodak. Both made film for cameras, obviously a dying market. Fuji considered itself a chemical company, and saw what else it could do with its technology and expanded into medical imaging, cosmetics, pharmaceutical drugs, biologics manufacturing, optical films for flat-panel displays, etc. Kodak considered itself a camera company and tried to get into digital cameras, but it was a short lived market, quickly replaced by smart phones. Film cameras had continuing costs that just weren’t there for digital cameras, there was no equivalent market.
Another option is to not grow, if you know your product is a fad, use contract manufacturers. Never build your own factories.
If you are shrinking slow enough, you can just hope people quit / retire faster than you are shrinking.
I mean you can shrink as you once grew by laying people off that you once hired. There’s really no other healthy way to “shrink”
What is your definition of healthy? Laying off workers to match demand IS healthy for the company. Doesn’t mean it feels good. Have you ever tried to lose weight? For most people, that’s both healthy and doesn’t feel good.
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