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Understanding the “Cash Cow” in business….

First, let’s define a Cash Cow from a business perspective: “The cash cow is the product or service that buoys profits year in, and year out and provides funds so the business can grow.” It brings in the cash that covers most of the expenses and helps cover the expenses of some not so profitable items.

Most businesses that have survived a few years have discovered their own cash cow. As in real life, cows produce more milk as they age but as they get older the milk production reaches a peak and then starts to decline.

It is important to know at what stage of life your own business cash cow is. Let me share a story:  IBM had as its cash cow, the mainframe computer in the mid-1970s. The newly launched PC was its fastest growing product and, initially, IBM dominated the PC market. Management deliberately restricted sales of the PC in order not to jeopardize its cash cow.

The rest is history.” IBM lost so much ground in the PC market place that its PC business never recovered. IBM’s product portfolio continued to be subordinate to its cash cow. With investors in mind they avoided the risks that come with innovation and developing new, leading-edge products and ended up being unable to compete amid the rapid technological and marketplace changes in the 1990s.”

In the case of IBM their cash cow had a long life before it eventually lost its ability to produce. In today’s business world, the life span of a cash cow is much shorter. As soon as you find and stabilize your business cash cow you have to start looking for the next one. The old adage of “putting all your eggs in one basket and watching the basket” no longer holds true.

The challenge that each and every business has is called innovation. Yes, there are risks involved and it may be scary from an investment    perspective, but without fear and risk a business will not grow. No business can say “We have finally arrived” because someone behind them will take the lead.

As a business you have to establish a “lead the field” department. You have to stay ahead of change in your field, with your products and services, and become the change leader. Yes, there is a process for leading change. It’s not a one-time lightning strike, but a series of steps. You can’t look at the future as a continuation of the past. The things that got you where you are, are seldom the things that keep you there.

It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.                        Charles Darwin

Nick J. Petra CFP

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