SHRINKAGE

Major Dilemma or Solid Strategy…

The current economy has been tough on many technology service providers who have either seen the overall business climate soften dramatically or even worse – literally fall off a cliff.

The social and economic turmoil comes at a time when many of these business owners were already in the throes of determining whether they should adopt and adapt to the rigors of the subscription economy or move on to greener pastures and retire1.

Many who have been through their share of technology transitions have determined that changing business models this late in the game, is not for them.

And who can blame them… This is not for the faint of heart and they have determined it’s time to make the move and begin strategically shrinking their business.

The play is to remove cost from the business as revenue and profit pools shrink, CAPEX budgets are slashed, and product purchases are put on hold. The work from home (WFH) emergency buying cycle is over and we’re settling into a world that is shifting and shaking beneath our feet.

Shrinkage works if you’re comfortable with cutting costs ahead of revenue declines and then moving quickly to beef up your retirement account prior to ceasing operations.

One might ask; “why wouldn’t the owner just sell their business and move on”?

Unfortunately, many product-focused resellers, integrators, and pseudo-MSP’ have businesses that are not worth much. These days many financial buyers put the value of product sales at or near $0 in their valuations.

So, if the owner wants to exit and avoid letting go of their life’s work with no tangible return – shrinkage is a reasonable strategy and might provide a small nest egg for retirement.

While shrinkage is fine for some, it’s not something most of us desire. Next week, I’ll look to discuss growth and the excitement that it brings to those who are willing to change and experiment with thriving in the Subscription Economy.