Change Agent - Issue 36

And, if you need another diagnostic, check your company's mood: One of the biggest symptoms of inevitable doom is grouchiness. After avoiding change for years and years, old companies that suddenly wake up from a comfortable slumber can be pretty grouchy, which leads them to take desperate measures.

Corporate grouchiness can take several forms, but two are most likely. One form is a complete and resounding denial that changes happening in the industry are real. To a grouch, changes in a business environment are nothing more than bubbles. And once those bubbles start to pop, the upstarts will get their come-uppance. The second, and even more dangerous, form is an attempt to take profits while the profit-taking is good. This latter approach allows a company's big guys to make their numbers look great while they eat their seed corn. By ceasing to invest in the future, it's quite easy to make today's numbers look good. And, hey, if your ship is going down, it might as well go down in style!

However, the biggest danger faced by companies that are under assault by change agents isn't either of those grouchiness symptoms; it's the power trip. Market leaders go on power trips all the time. They get used to having market power -- to dictating where people shop, or how authors publish their books, or how consumers get phone service.

The music industry is going through a phase like this right now. Since the days of Thomas Edison, the music business has thrived on a model that says that the contribution of a musician is worth about 10% of the price that a consumer pays for a record. The rest of the money goes toward a record's packaging, its polycarbonate, its shipping, the record company's risk, remodeling the record company's offices, the retailers' profit, limousines, lavish parties, and expensive designer water that is served with fancy lunches at the Four Seasons. Oh, and the record company's profit.

When consumers switched from buying LPS to buying CDs, record companies panicked. In retrospect, it's not really clear why they panicked -- but they did. The result was that CDs were priced at more than $10 (up from $7 for an LP 15 years ago), even though it costs virtually the same, if not less, to make a CD.

This was a triumph for everyone involved. Many say that the switch to CDs saved the record business. By doubling the price, they were able to create more money for every single person along the line -- including the musicians.

When you're paying up to $15 for a CD, you don't really notice the dollar that goes to the recording artist. Or you don't mind spending that last dollar, because, after all, that's why you're buying a CD in the first place -- to support the artist, not to support Tower Records or your local CD-pressing plant.

But then along comes the Internet and MP3 and Napster. Suddenly, the $10 that paid for all of those lavish extras and perks is gone. Suddenly, the only money that really needs to get spent is that last dollar. Suddenly, instead of jacking up the price when a new format comes along, record companies are faced with the very chilling prospect of watching the price drop all the way down to zero when a new medium gets established.

Like most companies in similar situations, though, record companies aren't rushing back to their conference rooms to figure out a brand-new way to do business, a whole new way to perform their function -- bringing great music to people who want to pay for it. Instead, they're doing what companies of every stripe have been doing for generations. When faced with a threat, companies "insist," as in, "I insist that you do business this way! I insist!" They fall back on old tools, because they've forgotten how to earn power. They threaten their suppliers. They threaten their consumers. They threaten the companies that are reinventing the industry. They insist!

The problem, of course, is that markets find their own equilibrium. Insisting, denying, pretending, demanding -- none of these postures will change the fact that customers and offerings will find each other. Faced with attractive alternatives, consumers find a way to get to those alternatives ... regardless of what old, power-happy companies do or say. Wishing that change agents will go away won't change a thing: It just makes business less fun for all of us.

Fortunately, it's not too late for most companies to wake themselves up. There's still a chance for companies to admit that fundamental rules of the game are changing and that they've either got to make a move or prepare to lose.

Even better, you have every right to vote with your feet. If you're investing your time and energy in a company that's asleep, then it's time to leave. The opportunity cost of staying with a dying giant is huge indeed: Staying put will cost you money, energy, enthusiasm, and joy.

As for me, I'm headed back to the stock exchange. I hear that it still offers tours to the public. Who knows? Maybe I can grab some stocks on my way out.

Seth Godin (sgodin@fastcompany.com) is the author of " Permission Marketing: Turning Strangers into Friends, and Friends into Customers (Simon & Schuster, 1999) and the founder of Yoyodyne Entertainment.