Resource Inefficiency: Liability or Asset?
Resource efficiency is the degree to which each additional dollar of investment (from outside investors or from the company’s cash reserves) drives value. Value is typically defined as revenue, user adoption. Resource efficient companies create more value with less investment. Resource inefficient companies get less bang for their buck.
Resource efficiency is an important driver of business strategy. It can determine your company’s financing needs, org chart structure and profitability. Clearly resource efficiency is generally a good thing. But is there a silver lining in companies that are resource inefficient? There can be and it comes in the form of competitive barriers.
While tech companies are famously resource efficient, there are lots of types companies that can be resource inefficient, including manufacturing and services companies. These companies tend to take a lot of capital to scale. You need a big upfront investment to build a factory and a lot of recycled profits to scale a services company.
Both financing dynamics create challenges. Upfront capital investment can be difficult to raise and reinvesting profits in order to scale can massively delay payback times for investors. While those can be frustrating dynamics, they also create appealing barriers. If it’s hard to raise investment capital, then fewer competitors will be able to follow in your footsteps. If investor and founder payouts are materially delayed, lots of would-be competitors will likely be deterred. Resource inefficiency, as a result, can create barriers to entry.
It’s worth noting that these advantages only hold true if someone else doesn’t find a way to compete with your company in a more resource efficient way. If a competitor finds a way to automate your service or reduce the manufacturing footprint, all bets are off. You better be ready to learn from them and adapt.
Your greatest weaknesses very often are your greatest advantages. The key is to understand them, know their limitations and know how they give you leverage.
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