Legacy companies will face increasing difficulty in choosing to invest in the future while paying dividends or advancing bureaucratic infrastructure because these are competing, cash-consuming aspects of the business. If legacy companies attempt to have it both ways, they run the risk of ending up like Sears, JC Penny, Digital Equipment Company, Circuit City, Compaq, Macy’s, Eastern Airlines, Nordstrom, and, perhaps someday, Walmart. What both today’s big names and smaller companies (which are most of us) need is disruptive change. What many legacy companies are not good at is disruptive change (like GM’s attempt with Saturn), but it can be done (like IBM and AT&T, as large-company examples).
One of the toughest things in business is not letting success blind you to the future. In our market-based economy, it is necessary to change or become marginalized and eventually irrelevant. Today’s legacy brands run the risk of becoming extinct in the Depression Decade of 2030 – 2040 or before if they don’t have a culture of disruptive change.
So what is the economic answer? Fund change. Spin off profitable enterprises to separate them from the cash cows that are not growing. Find the new products and develop them as part of a rebranding effort or creating new stand-alone brand. The days of paying cash dividends at the expense of funding growth will come to a rather abrupt end in the Depression Decade.