Is the model obsolete?
A declining business is not always a dying one.
Sometimes the model needs a pivot, sometimes resizing to reality, and sometimes the right call is to stop. Arrow delivers the honest diagnosis, then the path.
Some businesses need a pivot, not a plan. A rapid diagnostic separates the model’s real economics from the noise, and finds the revenue the assets can still realise.
Two video gaming businesses, one on pay-per-view and one on token-wagering, were pivoted onto sponsored revenue models, doubling revenues within a year. Building revenue viewer by viewer had been hard work while a slew of game publishers needed to deploy marketing budgets, and a host of brands were eager to reach mid-income twenty-somethings: the leagues held the loyalty of exactly that demographic.
The full story →Independent analysis of decline is worth as much as analysis of growth; vendors of declining businesses have less incentive to get it right.
The vendors of a TV rentals business projected 30% annual attrition: a sunset asset, priced accordingly. Working with the sponsor, we co-developed a contrarian thesis: 30% was a short-term blip we could explain, and the loyal core was declining at nearer 10%. Meanwhile the service model was much further from becoming sub-scale. The business could be bought cheaply and run for cash. The investment returned over 5x across a nine-year hold.
The full story →Stopping is also an answer, and good governance helps that decision emerge before more capital follows an old thesis.
A children’s radio joint venture between three partners had a sound thesis on paper, but the platform’s route to viable distribution scale was out of reach. The JV board called it, further investment stopped, and a buyer with a portfolio of similar assets emerged, enabling a soft landing. If governance works, bad outcomes are much easier to avoid.
The full story →The method in full, in our investment lifecycle articles: Deal Foundations and Enabling Infrastructure.
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