Growing in commoditised markets

Do you have a set way of thinking about innovation in business? These days, governments are heavily involved in funding research and development in a bid to help their economies lead the way in one area or two. These are all good except when people come to think of it as a one-size-fit all approach to business problems.

When a product or market becomes commoditised and competition reduces pricing power, the prescription tends to be about differentiation and “innovation”. The nature of the product or service is important to consider what kind of innovation there can be. A lot of commoditised businesses are simply cash cows: mature and cashflow generating but not growing.

The optimal way to grow with less risk is not to try and change the product. It is to consider consolidating the market slowly and one at a time. Find niches to acquire and gain scale, focus on optimising costs to enhance profitability and then use that to make more acquisitions. This is basically what is known as “roll-up” strategy commonly practised by private equity firms.

This sort of innovation is less visible but more profitable and meaningful for those companies. Maybe you won’t be poster child for being a company who went through “transformation”, but that’s okay!