In graduate school, I learned that Cash Cows are sacred.
If a dairy farmer has a cow that gives every day, she has a valuable asset because every day they can count on more milk. In 1966, the Boston Consulting Group borrowed the term from agriculture to introduce part of its new portfolio matrix. “ Cash Cows ” means products that earn more money than they cost to maintain market share.
I also learned that eating like their own Cash Cows was unscrupulous (just stupid).
Most companies wouldn’t do this. Why? In a stable economy, dairy cows are profitable. Milk your cows for as long as possible is conventional wisdom.
When we go through a lot of changes, sticking to the products and services that have been successful in the past can be the best strategy for losing share. Or worse, lose your business. Maintaining the original strategy for a long time led to the disappearance of companies and even industries. Here are some examples. Certainly, you can think of more.
- The railroad used to handle most of the freight in the United States. Trucks now carry nine times as much. ( source: US Department of Transportation )
- Taxis have lost about 50% of their market to ride-sharing services . Even medallion prices have plummeted. ( source: Ridster.com )
- The Yellow Pages were the most prominent small business marketing tool. Now, the product is not even printed and adolescents on stage today pre-driving do not know how a copy of the ‘Yellow Pages’. Yelp, facebook and others are often larger replacements.
Keeping your cows dairy for a long time is like throwing money away.
So when, exactly, is eating your own dairy cow a good idea?
- not to get stuck
- To find new revenue streams
- To keep up with customers
- To discover new customers
- To identify new ways to add greater value to existing and new customers
- To strengthen how you work internally
- To learn faster
Who is bold enough to eat their own dairy cow?
Only a few companies have the courage to cannibalize their own dairy cows. Rev , a translation/transcription service that now employs thousands of domestic workers, is one of them. The Rev, started in 2010 , creates value for its customers, jobs for its employees and profits for its shareholders. Rev uses smart routing to connect transcription work to the right person. Its workforce, 90% in North America and another 10% in English-speaking countries, is trained in speed and quality, which leads to fast response times (usually in hours). The Rev operates efficiently and at a low cost of $1.00/minute .
How (more importantly, why?) is the Rev cannibalizing his own recipe?
Starting in December 2017, Rev began risking its core business by shifting its solution from human-only transcriptions to include machine learning-based transcriptions. I’ve tried the service extensively and am very pleased with its 90-95% accuracy rates, its quick turnarounds (I’m getting 60 minute transcripts in about 10 minutes) and its 10x lower price (I’m currently paying in US$0, 10/minute ). This is a game changer for my workflow and my cash flow! The new service is operated under a separate brand called Temi .
Machines inevitably do the transcription work – faster, cheaper and with fewer errors than humans. But meeting these conditions is still years away. In the interim (ie now), Rev is willing to change his own business model and profit structure (remember, they charge $1.00/minute and that price is dropping to $0.10/minute, a tenfold reduction) in exchange for the opportunity to be the market leader in automated transcription. Which market do you think is bigger? Transcripts for $1 / minute or $0.10 / minute? I’ve already made my choice and imagined that millions of other people will discover the same thing for themselves.
But, that’s just my opinion. Here’s what Rev’s director of growth, Barron Caster, had to say.
(The following are paraphrased comments from our conversation, not quotes.)
Rev is playing a new game and smartly.
- They see machine-based transcriptions (Temi is the product name) as an extension of the productivity-enhancing tools they already offer their transcriptionists.
- Whether the new brand makes it or not, they’ll have productivity-enhancing tools they can use to improve the profitability of their current Cash Cow.
- Rev is already experiencing adoption from new customer segments (due to the lower price point of Temi). It’s expected that a portion of these will become regular Rev customers.
- The company expects that the greatest gains from this strategy will be what it can’t even envision yet.
- Surely, they won’t get caught by surprise by advancing technologies (like the railroads, taxis, and Yellow Pages did).
Think your Cash Cows are sacred?
They’re not. No matter who you are or what you do.
Should you sacrifice your Cash Cows after reading this blog? Probably not. Should you consider studying the impact of losing your Cash Cow(s) overnight. Probably so. This kind of thinking may just lead you to your own next big thing!
I appreciate Rev’s new business model because of personal experience. In graduate school, I started an on-demand transcription service. Instead of working with digital recordings like the Rev, we turned students’ handwritten notes into coursework with spell checking, proper notes, and overnight word processing. Check in at 8:00 pm – check out at 8:00 am. Last minute students, who never learned to type or prefer to drink beer, would pay 3 times the normal rate for our services. The company was called WordMasters: The Overnight Cure for the Term-Paper Blues. I had to pay for all the computers and I had typists in my apartment 24×7! Rev’s model is much better!I left the business at a profit after graduation 😉