I could see that coming from a mile away

“I could see that coming from a mile away.” It’s cliche and hyperbole all in one! The phrase is often used when an obvious outcome reaches fruition. Sometimes you get lucky based on intuition with an outlook. But what separates the lucky from the good is the ability to use Strategic Analysis to cut through the “chatter” and see what really matters and then do that over and over again.

Now before those not interested in business click off the window, this is also a life principle. Instead of “Strategic Analysis” replace it in the above sentence with “Wisdom” and you have the same relationship and outcome. Wisdom provides the ability to see where others cannot. To project out in time with a reasonable confidence that an outcome will take place. Crazy thing is this as I’ve observed: people love Wisdom when it reaches a conclusion they like, but they despise Wisdom when it reaches a conclusion they don’t like. That is completely upside down thinking when you look at it objectively and hence why I do this blog.

Anyway, here’s a real world, bonafide case in action in the business world. Two years ago as I was having dinner with a colleague while on a trip in Germany, I whipped out my pen and drew this diagram on a napkin and then took 2 minutes to walk through the implications of what it means to the Semiconductor Test Equipment segment:


Given where the industry segment was at the time I said these are the following long range implications:

1) There will be industry consolidation of existing firms

2) The companies in the ditch must choose to stand toe-to-toe with the emerging “big guys” or become industry specialists

3) The industry has matured and with that the game is now about making money, not beating each other up through market share

So what’s happened over the last 2 years (and no, I’m not revising my memory or history, my colleague can attest to me saying this):

1) Two attempts at consolidation with the last one successful: Advantest buys Verigy. This leaves 2 big guys at the far right of the curve in the diagram above: Advantest and Teradyne. This principle is called the “Rule of 3” unless the market is clearly dominated or too small which can be revised to the “Rule of 2”.

2) There is one company, LTX Credence, that has been historically in the “ditch” for the past decade. They have a choice, become a specialist or languish with below average returns. The trouble with most Executives is that shrinking the firm in the course of specializing doesn’t align with their ego even if it means the outcome will result in making profit. So the bad news is that LTXC probably languishes with below average returns.And lo, you get headlines like this morning from them that their orders dropped off a cliff in the last quarter: http://www.forbes.com/sites/ericsavitz/2011/08/31/ltx-credence-issues-dire-fy-q1-guidance-shares-tumble/?partner=yahootix

3) Sometimes the hardest to rationalize is that an industry has reached maturity. I know this one from the inside given I grew up with the birth of modern technology era and innovation. Folks here’s a message for Tech Workers: the industries making up Tech have matured in general. The days of tabloid grabbing headlines are largely over, and it’s down to the day-to-day life of making healthy profit. The implications are harder to swallow though. No more “risky tech projects” with visions of huge gains. No more acceptance of an idea just because it sounds cool. Get used to having to rationally justify your ideas and projects in ways that show they MAKE MONEY! Hype and visions of grandeur will no longer sell ideas.

I’m no wizard at business but I did stay at a Holiday Inn. LOL! Actually, I just spent time gaining practical business wisdom and then applied it to a situation. See wisdom itself is not what’s hard, it’s the application of it to myself that is truly challenging.

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About Steve Ledford
Christian, husband, father, businessman, engineer, and all around regular guy. I have travelled some uncommon paths in life. Over the course of time I have found that truth is always simple, without exception. My life's purpose is to find it, live it, and speak it.

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