I have chased lucrative opportunities to start a business, but after the dividend period is over, it is difficult for our startups to survive. What should we do?
This year, my friend and I have partnered to import a new material from abroad, and our business has been good.
Recently, however, some enterprises in our country have also begun to produce this kind of material, and more enterprises produce it, resulting in a sharp drop in product sales and rapid price reduction.
Our price is less advantageous, but there is still a lot of inventory overstocking, how to tide over this difficulty?
What should I do?
Answers ( 1 )
What happens when the lucrative chances of an industry ends?
The best time for you to solve this problem is not after the tail wind is over, but when you are still in the potential areas.
Therefore, your essential question now is, "the next time I encounter a dividend period and want to seize the chance to start a business, what do I need to pay attention to in order to remain invincible after the end of the dividend period?"
1. What is the dividend period?
You must have raised this question because you do not have a deep understanding of the "dividend period". Many entrepreneurs who think they are enjoying bonuses are actually becoming "working for society".
We have first to solve the question of "what is the dividend period".
We should know that when a society is relatively stable, the pattern of the industry is formed, and the value network is relatively determined, so there are corresponding individual ones on each niche, and this pattern is difficult to break.
Some companies can break the structure and make a lot of money, usually because some technological elements have changed (such as the Internet of things, artificial intelligence, new policies have emerged), resulting in the so-called "huge dividend period".
Therefore, the dividend period is "a period when some people can make a lot of money quickly".
You can interpret the money earned during this period as "God casually chose to throw down some money on a few people."
While earning this dividend, you must know that "this money does not belong to me in the first place, I just got it with good luck!"
2. What is the root of the dividend?
It is a temporary imbalance between supply and demand.
What is a "temporary imbalance between supply and demand"?
It is a change in structure -- when there are more buyers and few sellers, so the competition is not fierce, so as long as you sell it, you can make money.
However, over time, more and more people will find business opportunities, so the seller group expands, the competition becomes more fierce, and the dividend begins to disappear.
You have to make it clear that "all dividends will disappear eventually!"
As dividends disappear, companies that enjoyed the benefits of the dividend period face two possibilities:
On the left, your company will begin to enter the "profit-making" stage.
On the right, your company will only earn "little wages".
Whether your company can enter the left or right depends on whether you have built your own moat during the dividend period.
If your company doesn't build a moat during the dividend period, but spends its dividends (such as taking it home, buying a house, buying a car…), you will go to the right and start earning social wages.
3. What is "social wage"?
That is, as more and more people enter the arena, the competition between people will become more and more fierce.
As a result, you will find that "the profit I can make has gradually changed from 200% to 50%, 20%, or even 10%…"
If the profits get any thinner, your business won't be able to survive.
That's the situation you're facing right now!
Once you give up selling this special material and others quit at the same time, then the profits will rise again and return to the "social average profit", say 10%.
That's why yours suspended in midair, and you feel unsustainable, because your so-called entrepreneurship has evolved into "working for society".
This is what I mean. "your company went to the right at the turning point of the dividend period and began to earn social wages."
What about the people who dug the moat during the dividend period?
Under the blessing of the moat, the competitors behind cannot enter, which is significant!
The real profit comes from "no competition". Once there is competition, there can be no profit.
In this way, you can go to the left at the end of the dividend period and start making a profit.
4. What is a moat?
To put it simply, moats are divided into four categories, a total of eight:
The first category is intangible assets, including patent licenses and brands.
Apply for a patent or franchise before entering the market, then the dividend belongs to you!
Another kind of intangible asset is "you make it a brand and make it deeply rooted in the hearts of the people."
The second category is cost advantage, including scale and management.
The first is scale effect.
If your product scale is large and the purchase price is relatively cheap, it is possible to expand further the scale, which forms a cost advantage.
Similarly, management will also bring cost advantages, because management will increase efficiency and improve the input-output ratio.
The third category is the network effect (including user scale and ecology).
The larger the number of users, the more users there will be.
The most typical user-scale moat builder is Facebook.
Nowadays, you rarely see a person who doesn't use Facebook, because more and more people use it, so you have to get close to most people through this product.
By the same token, the bigger the ecology, the more prosperous it will be.
This is Amazon, because there are more and more buyers and sellers, forming a "virtuous circle" that promotes each other.
The fourth category is the cost of migration (including the assets and habits of users).
For example, my data has a network disk all year-round. Moving to another network disk will waste a lot of time and cost, so no one wants to leave.
Or I am used to using this phone, but I am not used to reinstalling the system with other phones.
Well, at this time, this product is tough to replace to some extent.
These moats must be considered during the dividend period and must be firmly established before the end of the dividend period.
Once you simply make money without thinking, digging or building a moat, then when the turning point comes, you will be the one who is blocked by other people's moat out of the profit zone.
5. Looking for the next dividend
What if you don't want to earn social wages and can't get into the profit zone?
You have to look for the next dividend.
In the face of the next dividend, there are still three kinds of people:
The first kind of people keep switching back and forth between different dividends and slowly become "arbitrageurs" who can only earn small things.
The second kind of person never has a moat, so he can only enjoy the lowest profit given to him by society, in a dilemma.
The third kind of people first enter the dividend zone, then quickly dig a moat, then enter the profit zone, and look for the next dividend, always making a higher profit!
In the final analysis, to solve this problem, what you have to think about is always "on which line my moat should be dug."
As material sales, the materials you sell may only be targeted at individual areas, so your moat may be management efficiency and brand.
Management efficiency means that "if you all sell the same thing, your sales efficiency will be higher and your sales team will be more experienced, so you will be able to make bigger customers at a lower cost."
Another way to build a moat is to "slowly brand my products."
In this process, you should pay attention to convey this message: "We are more capable of selling, and we are more trustworthy than other companies."
In this way, the "brand effect" is gradually formed.
If these two moats had not dug, the profits will certainly disappear!
All in all, there is nothing wrong with chasing promising chance to start a business, and what really makes you have a problem this time is that "you missed the opportunity to dig a moat during the dividend period."
Based on understanding the relationship among dividends, wages and profits, you can build your own moat in your next venture. You will be able to move forward in the direction of making profits after the end of the new dividend period, instead of "only earning social wages".
In the longer term, you also need to measure "whether I am the kind of person who has been digging a moat and making high profits during the dividend period" to avoid becoming a "simple arbitrageur".
For those who also eat the dividends in the promising areas, some people keep eating and become a "workers" for the society.
This is also a reminder to us, "what is your moat? What are you doing to build a moat? "--this matter is worth thinking about at any time!