Matrix Time, PART 1
Dear Erin,
So sorry I missed posting a blog entry last week. Audit, board meeting and some HR challenges. I should have had one in reserve just in case I got busy but, well, here we are. (Fortunately, you were on vacation…so maybe subconsciously I went on vacay too!!)
Here’s what’s on my mind today: The Matrix. And no, not Neo. Business consultants like 4-quadrant grids, called matrices. They pick two key variables, put one on the x-axis, one on the y-axis and then divide the graph into quadrants. Sometime they name each of the quadrants, but always they prescribe specific actions of what to do when you find yourself in each of the four.
I used one of the most famous business matrices as the picture for this post. This is the Boston Consulting Group Growth/Market Share Matrix from back in the 1970’s. It depicts 4 business scenarios based on whether a product line is (or will have) high growth or low growth and whether your product in this business has a high or low market share. The idea is to be able to analyze products for growth potential and profitability in order to determine where you should invest.
It’s easy to see that anything for which you have a low market share in a market that has low growth is not good; perhaps you should consider getting out of that business line. The reverse is true: if you have a big market share in a high growth area, double down on that because there’s great potential there. BCG named the quadrants in this matrix: the former is for dogs (with all due respect to Pepe, Stewy, Kody, Stewart and Sesame…); the latter is for stars.
Have you ever heard of a “cash cow”? The term gets tossed around in the business world when you are talking about businesses or products that generate a lot of income (cash) with very little work or investment. Cash Cow comes from this BCG matrix; it’s the third of four. It means you have a high market share in an industry that is not growing. Most likely, you don’t have to invest much and you don’t have to fear new competition, because few will want to challenge you for market share in an industry that has no growth potential.
Some might say that The Nutcracker is a cash cow. It probably splits the market for live Christmas concert-theater extravaganzas with A Christmas Carol and Handel’s Messiah. The market isn’t really growing, going to see these shows are family traditions and it would be super expensive (and risky) to come up with a completely new Christmas show to break into the top 3. Sure, you could set a piece that could be very successful in your community even with a December performance date, but it would be very difficult for that piece to scale enough that it threatens to displace The Nutcracker in terms of audience, sponsors and profit. (Not saying it isn’t hard to put on a good Nutcracker!! Just saying that it really isn’t going to be materially different than what you did last year!)
The fourth quadrant, high growth but low market share, is for “question marks.” Given that the market is growing, you might be able to increase your market share if you put some resources into it. As a new business, most of what you want to focus on should be question marks. Where is there a growing market for your product so that you can ride that wave of growth and begin to build your own base of followers within that growing market?
It would seem to me that teaching dance classes are “question marks.” The market for dance classes seems to be growing in your community - or at least it is always changing with new people coming in all the time. Even though there are some established teachers who have strong followings and class rosters, you could still build yourself in this area and do well, assuming you like doing it.
You may have some dogs - pets you are quite fond of, in fact! But if they are products called dogs in this matrix, you’re not likely going to be able to make a ton of money since the market is small, it’s not growing, and most likely there are a few “cash cows” that have already taken over most of the market. Even if you are really good, you’ll need to displace an existing competitor to build your business.
Hah. So actually all of this was an introduction to what I really wanted to talk about, which is a matrix I created this weekend for analyzing a totally different business problem. But you know what? I think that’s enough to go on for tonight. I’ll introduce you to my little matrix project in a few days.
In the meantime, invest in and protect your stars (once you have some), consider building your question marks, be glad for a cash cow or two which hopefully is providing annuity-like income, and watch out for dogs. They make great pets, but not great product investments.
Love, Mom
