Are you Running a Bad Business? Don't.
Updated: Aug 31
By Wythe Walker
Management 101 Series
Here’s a business aphorism: It’s better to be a poor manager in a good business, than a great manager in a poor business.
What does that mean? What is a ‘bad’ business?
A ‘bad’ business is one where profit margins are slim, or declining. Perhaps the fundamentals have changed dramatically. As a result, no matter how competent you are, the odds are increasingly stacked against you.
Consider mass-market newspapers in the past 15 years. With the advent of the ubiquitous smartphone married to high-speed internet access on desktops, the daily news cycle transformed into 24/7/365. Add in Twitter news feeds, FB news, and a further explosion of websites catering to every possible interest, and the precious reader’s attention that print newspapers sold steadily dwindled each year.
The result? The rapid disembowelment of newspaper print advertising around the country. Total estimated revenue was $49B in 2006, down to $9B by 2020 (!). Imagine being a mass-market newspaper executive and watching your print revenue decline each year, while your online sales steadily increased but only replacing a fraction of your lost revenue. What would you do?
A few national newspapers like The New York Times and The Wall Street Journal have aggressively shifted their focus to digital, markedly increased their online circulation, and made the leap successfully. So far, local and regional newspapers are in serious decline without a viable new model.
What about being a poor manager in a good business? When I was the publisher of Arkansas Business, I got to know other business publishers. Some were fantastic publishers with a combination of great sales and journalism skills. Others weren’t so hot. But, after a little bit of study, one thing stood out: Regional business journalism was a goldmine. Even the poorly run business journals survived and, usually, made a profit. The better ones put out good products, paid their staff well, and raked in the dough.
Here’s a fact that tells the tale: Local business newspapers started popping up around the country in the late 1970s and early 1980s. The boomers had graduated from college, were interested in business, and wanted more information. As a result, not one of these new newspaper startups failed. Not one. This is unheard of in journalism where typically only one in ten startups make it into the third year.
Being successful in business is like being a successful craftsman. You have to learn the trade, learn the basics and then apply them. But, most important, look around and see if you’re in a business niche that is growing or declining. If it’s sliding downwards, you have two choices. Either redefine the business or get out. Staying in a poor business niche rarely leads to even marginal success and, mostly, leads to frustration.
Take it from Warren Buffett. He bought an interest in Berkshire Hathaway in 1962 which was a New England textile mill company. He thought it was a bargain, but after a while, he realized that despite having an excellent manager, he had invested in a failing business model.
Undaunted and flexible, Buffett eventually closed the mill and redirected his profits and management expertise into an insurance business and beyond. Fast forward 60 years later and Buffett is the fifth richest American worth around $96 billion dollars.
The lesson is simple for any business owner and investor if they’re willing to learn it.