In graduate school, I learned that Cash Cows are sacred.
If a dairy farmer has a cow that gives milk each day, it has a valuable asset because every day they can count on more milk. In 1966, Boston Consulting Group borrowed the term from farming to introduce part of its new portfolio matrix. “Cash Cows” means products that make more money than they cost to maintain market share.
I also learned that eating one’s own Cash Cows was unconscionable (just stupid).
Most companies wouldn’t do that. Why? In a steady-state economy milking cows is profitable. Milk your cows for as long as possible is the conventional wisdom.
Not any longer.
When we experience lots of change, sticking to the products and services that were successful in the past may be the best strategy to lose share. Or, worse, lose your business. Holding on to one’s origin strategy for too long has led to the demise of firms and even industries. Here are some examples. Surely, you can think of more.
- Rail used to move most of the freight in the US. Now trucks carry nine times more. (source: US Department of Transportation)
- Taxis have lost about 50% of their market to ride-sharing services. Even medallion prices have plummeted. (source: Ridster.com)
- Yellow Pages were the most prominent small business marketing tool. Now, the product isn’t even printed and today’s pre-driving teens don’t know whata copy of ‘Yellow Pages’ looks like. Yelp, facebook, and others are the many-times-larger replacements.
Keeping your Cash Cows too long
is like throwing money away.
So, when, exactly, is eating your own Cash Cow a good idea?
- To not get stuck
- To find new revenue streams
- To stay current with customers
- To discover new customers
- To identify new ways to deliver greater value to existing and new customers
- To strengthen how you work internally
- To learn faster
Who is bold enough to eat their own Cash Cow?
Only a few companies have the guts to cannibalize their own cash cows. REV, a translation/transcription service that now employs thousands of at-home workers worldwide, is one of them. REV, started in 2010, creates value for its clients, employment for its staff, and profit for its shareholders. Its software platform splits incoming transcription and translation jobs into bite-size parts that are completed by transcriptionists anywhere in the world (usually in less than one hour). REV then reassembles the pieces into completed documents in record time — at the low cost of US$1.00/minute.
How (more importantly, why?) is REV cannibalizing its own revenue?
Starting in December 2017, REV started risking its core business as it moved its solution from human-only-based transcriptions to include machine-learning-based transcriptions. I’ve tried the service extensively and am very pleased with its 90-95% accuracy rates, its quick turnarounds (I’m getting 60-minute transcriptions in about 10 minutes) and its 10x lower price point (I’m currently paying US$0.10/minute). That’s a game changer for my workflow and my cash flow! The new service is operated under a separate brand called Temi.
It’s inevitable for machines to do transcription work–faster, cheaper, and with fewer errors than humans. But, meeting those conditions is still years away. In the meantime (i.e. now), REV is willing to upset their own business model and profit structure (remember, they charge $1.00/minute and that price is going down to $0.10/minute, a tenfold reduction) in exchange for the opportunity to be the market leader in automated transcriptions. Which market do you think is larger? Transcriptions for $1/minute or $0.10/minute? I’ve already made my choice and imaging that millions of others will figure the same thing out for themselves.
But, that’s just my opinion. Here’s what REV’s Chief Growth Director, Barron Caster, had to say.
(The following are paraphrased comments from our conversation, not quotes.)
REV is playing a new game and doing so smartly.
- They see machine-based transcriptions (Temi is the product name) as an extension of the productivity-enhancing tools they already offer their transcriptionists.
- Whether the new brand makes it or not, they’ll have productivity-enhancing tools they can use to improve the profitability of their current Cash Cow.
- REV is already experiencing adoption from new customer segments (due to the lower price point of Temi). It’s expected that a portion of these will become regular REV customers.
- The company expects that the greatest gains from this strategy will be what it can’t even envision yet.
- Surely, they won’t get caught by surprise by advancing technologies (like the railroads, taxis, and Yellow Pages did).
Think your Cash Cows are sacred?
They’re not. No matter who you are or what you do.
Should you sacrifice your Cash Cows after reading this blog? Probably not. Should you consider studying the impact of losing your Cash Cow(s) overnight. Probably so. This kind of thinking may just lead you to your own next big thing!
I appreciate REV’s new business model because of personal experience. In grad school, I started an on-demand transcription service. Instead of working with digital recordings like REV, we turned students’ handwritten notes into spell-checked, properly annotated, and word-processed term papers on an overnight basis. In by 8:00pm–out by 8:00am. Last-minute, never-learned-how-to-type-or-prefer-to-drink-beer students would pay 3x the going rate for our services. The company was called WordMasters: The Overnight Cure for the Term-Paper Blues. I had to pay for all the computers and had typists in my apartment 24×7! REV’s model is much better! I did exit the business with a profit upon graduation