Can Deficit be Part of your Corporate Strategic Plan?
Just a few weeks ago, Disney Corporation made a significant announcement. Disney will be launching a streaming service in November of this year. Disney Plus is suspected to retail for $7 / month or $70 / year. An intentional price point to undercut Netflix and HBO Now. Disney Plus, will feature a lot of Disney content. Once they launch, Disney content will no longer be available on Netflix and HBO.
Is it going to be all hakuna matata for Disney and a lot of Netflix having to let it go ?
There are a couple of interesting elements in this decision. One, is that Disney expects to lose money on this new offering, for the first five years. The new project will run a deficit. This leads to all kinds of discussions on strategy decisions that lead to initial deficit positions in favour of future growth. The second is how intentional Disney is being. They are not hiding the fact that they intend to undercut and grab a market share away from Netflix. This element links to the importance of strategic decisions where we absolutely need to have an eye on our competition. We need to fully understand the marketplace.
Clearly Disney’s decision to no longer offer Disney content on Netflix and the other competition will impact both the competition and consumer buying habits. Consumers who favour Disney content will absolutely want to sign up for Disney Plus, which may lead to them discontinuing their subscription(s) with Netflix, HBO Now, Amazon Video, Hulu, and the variety of other streaming services.
Adventure is out there
Earlier this month I was with an executive team that was actively discussing the very decision to make strategic investments this year, that would mean a bottom line in the red at the end of fiscal. They contemplated whether deficit now was worth the risk of growth later. A lot of considerations are needed in order to make and execute such a decision. We know that the #1 law of entrepreneurial gravity is that GROWTH SUCKS CASH. Sometimes we need to consider a temporary deficit decision, if we believe it will serve us well in reaching our BHAG. A decision to do this must never be taken lightly. Doing this requires the analysis of a whole range of assumptions and data, to chart out an eventual course to profitability. It also requires tremendous alignment amongst stakeholders.
I am also thinking about a strategy session just a couple of weeks ago with two entrepreneurs in a technology start up that are very focused on tackling and taking market share away from competitors. Again, this is something that all businesses must consider. Who is our competition? Do we intend to take business from them? If so, how will we do it and how will we differentiate ourselves in the marketplace? What is it going to take to capture a greater market share at the expense of our existing competition?
a tale as old as time
Disney has proven time and time again that from a strategy standpoint they have robust processes in place to evaluate and determine when it makes sense to incur deficits and or debt in service of future profit. Moreover, the corporation has a proven expertise in evaluating market opportunities and in continually taking greater market share in service of growth and profits. They just keep swimming, just keep swimming. It is for these reasons why I predict Disney Plus will be a success and will help Disney continue their corporate journey to infinity and beyond!
Cameron’s Call to Action – I don’t want to survive I want to live
- Does your strategy include a decision to run a deficit for any time period in service of longer term growth? If so, have you done your due diligence in terms of a full analysis? Do you have confidence in exactly when the red will turn black?
- What does your current strategy include in terms of tactics to take a greater market share, including taking from your existing competition? Are you spending enough time and effort watching and evaluating the market dynamics to be sure?
- Include robust discussions on these important items in your next strategy meeting. Be sure you can predict with confidence what is upcoming. Your strategic thinking council should be able to assist you with doing this well.
Cameron is an Executive Coach and Consultant specializing in business growth and creating psychologically healthy workplaces.