As I pointed out in a previous blog, one of the options an owner has in this era of digital transformation is simply to “sunset” their traditional business model and “milk” it for as long it can possibly last.
You might be asking, how much exactly is that worth?
The answer is, it depends.
But in general, here is what your revenue and earnings trajectory will most often look like. Call it your Sunset Trajectory.
To start with, any business has a certain inherent revenue momentum. Hopefully, it is positive to at least some degree.
In the short term, you can rationalize certain costs quickly. Staff can be laid off, for example, and new customer acquisition costs slashed. Some, but by no means all, overhead can be reduced as well. All this does not immediately impact revenue momentum, however. There is a time lag. So, for a while earnings rise faster than revenue.
Unless, of course, a recession intervenes. Which I would point out, we’re very likely due for any time now if history repeats itself. Which it has a habit of doing. But let’s park that for the moment.
Eventually, recession or no, your customers work out that you’re going out of business. You just haven’t told them yet. When that happens, revenue starts to decline.
You’ve already cut all the costs you can, so now your earnings start to fall faster than revenue. At some point, they turn negative. Then, you turn off the lights and go home. You’ve extracted all the money you possibly can.
The real question, of course, is what might your Sunset Trajectory look like? And how does it compare to what you could extract by selling the business, or investing in your own digital transformation?
If you’d like to work that out, contact me.