Business leaders, whatever their industry, become so mired in day-to-day demands of managing their business that they often fail to see opportunities not just outside their industry boundaries but inside as well. Revenue and profits suffer as a result.
The gun industry is a case in point. The percent of US households owning a gun is has been declining for decades with ownership among younger demographics falling the most. Purchases by existing gun owners, which accelerated post Obama’s election, drive gun manufacturers’ revenue growth.
This demand pattern is not sustainable as a revenue engine. Ownership will likely continue to decline owing to demographics as fewer young people hunt today than in the past. And at some point, the marginal benefit from an additional gun purchase drops below the cost of purchasing yet another gun.
On the surface, therefore, it makes sense that the gun industry would invest huge sums to fight off any attempt to control guns and hurt whatever revenue growth potential remains. Herein rests the industry’s strategic mistake.
Imagine instead if gun manufacturers adopted the following changes to the industry business model:
- Acquire and develop new-to-market safety features such as bio-metric identification and child-proof safety features, making safety technology a new basis of competition. When competition migrates from mature to new-to-market features, industry returns typically increase.
- Lobby for legislation that makes ownership of any newly purchased gun lacking safety features illegal
- Sell safety upgrade kits for recently manufactured guns
- Offer gun owners highly attractive “trade-in” opportunities for guns that cannot be upgraded with safety retrofits
- Continue to innovate safety features
In the 1980s the anesthesia industry had a “gun to its head.” A widely viewed TV show on death from anesthesia created a public outrage that accelerated product liability cases against anesthesia manufacturers. One manufacturer, which had the longest tail of older models in use, went out of business due to liability costs.
Like guns, there is nothing inherently unsafe about an anesthesia machine in the right hands and used the right way. The machines can be dangerous however as they deliver drugs and gasses – the ones that keep you from feeling the pain of surgery – which, if not titrated correctly, cause morbidity and mortality. The older machines lacked basic safety features of newer machines such as hose connections that prevented attaching any gas but oxygen to the part of the machine that delivers oxygen to the surgical patient.
There was industry pressure to fight the public outrage – to argue that doctors needed to be more observant and that anesthesia machines were safe when checked before use. Instead major monitoring companies introduced machine and patient monitoring safety solutions and innovative start-up companies like Nellcor (later acquired by Covidien) created new-to-market monitoring capabilities such as pulse oximetry which measures oxygen content in the blood. Enlightened leadership of the anesthesia machine companies saw the new monitoring as an opportunity. They integrated monitoring into their equipment and passed standards that required this integration.
The introduction of safer systems on the market dramatically lowered the replacement life of anesthesia machines and increased their average selling price. An educational campaign that my team at Ohmeda (now owned by GE Health) developed encouraged hospitals to replace older machines lacking new safety features.
The net result? Safety increased, lives were saved and anesthesia equipment manufacturers had record years of financial performance from dramatic reduction in liability risks and growth in market size and average selling prices.
Of course the comparison is not exact. Doctors, hospitals and manufacturers faced liability costs that gun manufacturers do not (yet?) face. But the revenue uplift possibility exists nevertheless for gun manufacturers.
My advice to gun manufacturers – change your paradigm to improve future performance. Your status quo income statements will be covered in red ink.
What opportunities are you missing in your business?