Saturday, March 19, 2011

10 Dying U.S. Industries on the Verge of Extinction

Mark J. Perry lists these:

1. Wired Telecommunications Carriers
2. Mills
3. Newspaper Publishing
4. Apparel Manufacturing
5. DVD, Game & Video Rental
6. Manufactured Home Dealers
7. Video Postproduction Services
8. Record Stores
9. Photofinishing
10. Formal Wear & Costume Rental
Apparel manufacturing has gone off shore, so that's a bit misleading and I'm not sure about number 6. But the remainder looks pretty accurate.

BTW, Perry writes that these industries are facing extinction because of "Schumpeterian gales of creative destruction" and this is accurate, but many view Schumpterian's creative destruction as the beginning and end of entrepreneurship, which is inaccurate. A much more insightful view of entrepreneurship was developed by the economist Israel Kirzner. Building on the analysis of Ludwig von Mises, Kirzner in Competition and Entrepreneurship makes the important insight that entrepreneurship is a kind of arbitrage, where a person sees an opportunity to take advantage of a price discrepancy between markets.

For example, a person sees lumber selling for a certain price, but realizes that if he has the lumber assembled  into a picnic table and then sells the picnic table for more than it cost him to buy the lumber and have it assembled, he has made entrepreneurial profit. In other words, the lumber markets and labor markets were priced in such a way that there was opportunity for an entrepreneur to come in and arbitrage the lumber and labor markets against the picnic table market.

For Kirzner this is the essence of entrepreneurship. In the Kirzenrian analysis, Scumpeter's view on entrepreneurship is, if anything, only a distorted limited subset of the true essence of entrepreneurship. It is not Scumpeter's "creative destruction" that is at the heart of entrepreneurship, but the fact that entrepreneurs mix and match land, labor and capital to make a better world, sometimes this involves what Schumpeter calls creative destruction, in most cases it does not.

6 comments:

  1. One way for companies to survive in the dying industries is to offer special deals.

    A fixed wire Telecom Carrier might offer low speed internet for $10/month.

    And a Video Rental company might offer special pricing one day a week.
    For example, Crazy Mike's Video, in my neighborhood thrives because it offers $1.00 pricing on Tuesdays on all rentals. http://tinyurl.com/4ukw2tn

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  2. There is a lot more to making a successful business than arbitrage of the price of inputs vs. output. You may make a $100 picnick table out of $10 lumber and $70 other costs, but if you cannot advise potential buyers of what you have, effectively, maintain some sort of competitive advantage over everyone else who can buy lumber and labot at exactly the same price that you can, maintain a good business and brand reputation in the face of daunting challanges, etc., you will fail. Should you spend more on advartising or quality control? Distribute through Wal-Mart for volume or direct internet sales to maintain margin? Spend countless dollars on meetings, lawyers and consultants or fly by the seat of the paints? Make decisions where there is no one who can tell you what is right and your life savings are on the line everyt time.

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  3. @Munch

    My example was to explain, simply, Kirzner's understanding of entrepreneurship, not design a business model to sell picnic benches. What part of advertising, management and quality control, doesn't fall under land,labor or capital?

    Read Kirzner.

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  4. I'm sure that all the telecoms carriers will be surprised to learn that their landline networks need be decommissioned in the forseeable future.

    Cell phone towers will be linked to each other and to the internet by wireless communications. And what about the landline backbone network over which to configure private lines and frame relay? Yep, that too will be wireless. So also internet backbone circuits. No more landlines for inbound and outbound POTS to and from offices, either. No more international traffic on undersea cables. Etc., etc.

    As for landline POTS to residences: sure, people are giving that up, but that wasn't news to the carriers TEN years ago. Maybe the telecos are taking a hit on ISDN to residences. Big deal. Last mile bandwidth demand is ever increasing, and that means more traffic on the landline backbone networks.

    One of the things I expect is that the news organizations of the big media companies will come under enourmous pressure, much more than now, from amateurs and small outfits as the upstarts' sophistication increases. Much of their content goes on the internet--->Bonus to the telcos for selling bandwidth over the last mile to homes and for phones and laptops.

    This reminds me of when I worked in telecoms business development. There was never a shortage of pundits to speculate about an industry of which they had superficial knowledge. Mostly what they did was stir up trouble among our customers' consultants and among our sales reps who'd not yet learned to disregard much of what the pundits claim.

    IBISWorld
    "WHERE KNOWLEDGE IS POWER"
    http://www.ibisworld.com/about/default.aspx

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  5. "What part of advertising, management and quality control, doesn't fall under land,labor or capital."

    You are acting like they are all something you can just buy and it will be the correct allocation of your limited resources. You just buy the correct portion of land, labor and capital. My point is the "correct" allocation is the difference between success and failure and there is no consultant or book that can answer it for you when you pledge everything you own and more on your own start-up.

    Yes, they are all costs subsumed in the arbitrage where your revenue exceeds the costs. The judgement, the mixture, is the difference between success and failure.

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  6. Wired Telecommunications Carriers? That's the internet backbone. POTS might be dead but not the telcos

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