The phrase “Cash Cow” has echoed through the halls of business schools for over 40 years, ever since it appeared in the famous Boston Matrix back in the seventies. Perhaps this year the concept of the cash cow will finally be killed off.
The matrix, as since redrawn by a million MBAs, has four quadrants to categorise businesses by market share and market growth. The idea was that cash cows (large, profitable businesses in mature markets) should literally be “milked” to provide cash to fund the “rising stars” (new opportunities in potentially higher-growth markets).
That’s pretty much the model Tesco followed by milking its core UK business for a decade to fund new ventures. They’ve issued four profit warnings in 12 months and the new CEO now has a mountain to climb.
The Boston model assumes markets are stable environments where established companies have a natural advantage. That may have been the case fifty years ago, but it certainly isn’t now. The pace of change in most markets has increased beyond recognition, and it’s a shift that’s only going to accelerate as the potential for new competition, in almost every market, continues to increase.
Think about it. In the last decade, a billion creative, inventive, entrepreneurial people have been given access to global funding, manufacturing, design and engineering capability, at literally the click of a mouse. Already, in today’s mature markets, leaders can only retain their position through continual innovation. In tomorrow’s markets, they will need to be thinking in terms of constant reinvention.
So here’s the question: if what looks like a cash cow to you, is in reality, a big fat target for everyone else, what should you do about it?
Answer: get ready to slay it.
As soon as your growth shows the first sign of slowing, you need to be using every drop of cash from your cow to create the next big thing ready to take its place, because if you don’t, someone else will.
Bottom Line: A profitable business with a high share of its market isn’t a cash cow you can sit back and milk. It’s actually a fatted calf, and it’s probably being eyed-up by someone else right now.