Just so we are on the same page – Cannibalization in this case does not mean eating people it has to do with the introduction of a product or service that eats in to a company’s primary revenue stream. 

Many companies have faced this issue in the past – some famously have clung to their antiquated business model or product and rode it into the ground. A few examples: The Recording Industry for not embracing digital downloading; The Movie Industry in resisting but ultimately embracing the VCR; and even in my own career as EarthLink did not want to offer an Email only subscription for fear it would increase the cancellation of people paying $21.95 per month for dial up when they currently had high speed access and were keeping their dial up account only to maintain their email address.  Hey people figure this stuff out!

So what is the problem here?  Why should you embrace new products that could ultimately cost you sales in your primary business?  Single answer is that if a new product comes along or business model that greatly lowers the value proposition of your current product or if the new “thing” adds more value to a certain segment of your current customers, then someone will offer the service to your customer and your customer (at least a portion) will buy it from them and leave you.  Bottom line is that a portion of your clients are gone as soon as the new option becomes available.  The big questions are how many and how soon?

As a leader of a start-up you it is rare indeed that your new business will face the challenge of cannibalization – but if you are selling into a market where your product risks cannibalizing your potential client’s primary revenue stream you need to consider these issues and combat them.

Here are my three steps to confronting/battling those who bring up cannibalization as a reason NOT to adopt your new product, service, or business model:

1. Show that the change will happen and what effect it will ultimately have on the business if adopted by competitors (The Doom Case).  Make no mistake it is not a question of “if” but “when”.
2. Create the financial models to show the impact of new product adoption allowing for cannibalization to occur.
3. Demonstrate or provide a plan on how the business can be changed where by the new product if adopted could boost the business without destroying the entire revenue stream (This is the action plan behind the business case in step two).
4. Give anecdotal examples of how cannibalization issues have affected similar businesses.

A word of warning – this is BIG risk stuff – Do your homework!  In my experience the change usually does not happen as quickly as you think (so you have more time to milk the old model or products) and there is not perfect information (so your customers will not immediately change to the new model or product). 

Also, pray that you are not working for the Encyclopedia Britannica as Microsoft rolls out Encarta where a $1,300 set of books are replaced with a $50 and then free online version offering greater quality.  That spells GAME OVER!

It has been said that the sum of all technical knowledge doubles every two years (2006 stat) and will double every 72 hours by the end of 2010.  It has also been said that the sum of all human knowledge doubles every five years (2001 stat) who knows what that time frame is now.  The fact of the matter is that business as part of the human experience is changing so quickly that it is hard for us working adults to remember life before email, the Internet, texting, and social networking.

The only way to address the changing environment is to take a pause from your daily routines – even if you are a start-up and think about how you are doing business and try to understand how your clients are shifting and responding to the change taking place.  Are they changing as fast?  Are they being left behind?  Can you help them change faster?  To help them move faster do you need to change.

One fact is that by doing business the way you did it yesterday will not help you address the needs of tomorrow.