Aug 162012
 
How can business survive rough seas

“Stranded assets” are an accounting term for property that’s worth more on the books than it is in the marketplace.

Often the valuation problem has come about because of market, legislative or physical changes – what was a valuable and useful asset becomes isolated from the rest of a business.

Customers are biggest asset we have in our business – so what happens if our customer base becomes a “stranded asset”?

This situation isn’t far-fetched in a time when technology changes a marketplace – a blacksmith providing services to stagecoach companies would have been in this situation a hundred years ago.

In response to Are Businesses Fleeing the Online Space?, Xero’s Australian CEO Chris Ridd made some points about the problems MYOB have in the accounting software marketplace.

We see that going online to the cloud is finally allowing many small businesses the opportunity to avoid the “walk into Harvey Norman and fork out hundreds of up-front dollars on on-premise software” experience and instead go straight to the simplicity and cost efficacy of the cloud.

This is evidenced in our numbers and the fact that 40% of new customers signing up to Xero are coming from no software. (I mentioned last week at the NBN Forum that it was 30%, but we doubled checked and were staggered to find it was actually a lot higher). So we are creating a new market and cloud is therefore increasing the addressable market for accounting software. The cloud changes the economics of doing IT and makes automation of the business accessible and attractive to  a whole new category of SMEs.

Chris’ point is interesting – the new generation of businesses aren’t going to the computer superstore and buying box software. Which is a problem for those who sell box software such as MYOB and Harvey Norman.

What’s more, customers have moved away from those same superstores along with things like phone directories and classified ads, which is the problem companies like Sensis and Fairfax have to deal with.

A decade or so ago, MYOB, Sensis and Fairfax were dominant in their markets with a loyal band of customers. Today the remaining customers – many of whom have not changed their business plans for decades – are”stranded markets” made up of holdouts who won’t move to new technologies.

Those holdouts aren’t particularly profitable and they are slowly leaving their industries through retirement or, increasingly for these slow adopters, going broke.

Being dominant in a market that’s declining in both profits and sales is not the place to be for any business.

It’s difficult for the managers of these enterprises to move as their existing products are their core business, which is the classic innovators dilemma, but the alternative is to end up like Kodak or Sony.

One thing missed in the eulogies for Steve Jobs is how he overcame the innovator’s dilemma problem within Apple. When it became apparent the old Mac OS was a barrier to innovation, he killed it along with the floppy disk and Apple Device Bus.

Apple’s customers hated it as most of them had a substantial investment in the hardware which Jobs had made obsolete overnight. But almost all of them came back and became greater fans.

News Corporation are trying a different tack to Steve Jobs in splitting the operation into an “old” business and a “new’ business. That way the old business can find a way to make money or quietly fade away without affecting the newer, more dynamic entertainment and electronic arms of the organisation.

The challenge for MYOB – along with Harvey Norman, Fairfax and Sensis – is to move their customers to the new technologies, those who won’t go are the past and those stranded customers will isolate the business from the mainstream.

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