Next, focus on cash flow and safeguard your business.

AI’s dividends disappear: Why companies need to focus more on internal management

Opinion / Liu Run Main Writer / Wan Qing Editor / Huang Jing

First published in August 2023

Today, we are reposting a popular article from the past titled “Next, Focus on Cash Flow and Protect Your Business,” hoping it will inspire you.

Below is the full text of this reposted article.

By 2026, the consumer market is becoming increasingly competitive.

Today, the world is full of uncertainties, and industry changes are accelerating.

The market is shifting from growth-driven competition to stock-driven competition.

Market dividends are turning into red oceans, and corporate profits are thinning.

Competition is intensifying, and changes can happen suddenly.

However, due to frequent business trips and contact with many frontline companies, I see two opposite worlds.

Even within the same industry,

Some are struggling and caught in difficulties,

While others are growing against the trend and escaping hardship.

In my view, the world can be described as:

Half is the sea, half is flames.

Faced with these changes, all companies and practitioners are actively seeking solutions.

But where is the next way out? Should we give up existing businesses?

Individual Corporate Return on Investment

Recently, during a business trip to attend a private board meeting, many entrepreneurs asked me:

Liu, my current business is becoming less profitable. Why should I stubbornly hold on to unprofitable operations?

Others’ products always seem more attractive.

Should I just give up my current business and enter a different industry to fight, compete, and earn profits?

This idea doesn’t seem wrong.

But I would suggest that for the foreseeable future, most companies should focus on cash flow and firmly protect their core business, rather than switching industries and entering fields others are fiercely defending.

Why is that?

For this friend, first, they need to clearly understand and honestly admit that the dividends have ended.

What are dividends?

Dividends are short-term supply-demand imbalances.

In the past, e-commerce competitors were traditional retailers.

E-commerce disrupted traditional retail through structural changes—online versus offline, new species versus old species.

The transaction chain was significantly shortened, many middlemen eliminated, efficiency greatly improved, giving e-commerce a crushing advantage.

When e-commerce first emerged, there were many buyers and few sellers, creating an imbalance.

As long as merchants entered, received support, and gained traffic, they could make money.

Many succeeded by catching this wave of “traffic dividends,” intentionally or unintentionally riding the trend.

During the dividend period, e-commerce had a crushing advantage

But as long as dividends exist, sellers will focus on grabbing buyers until supply and demand balance, and the dividends disappear.

During the dividend period, “there are no difficult businesses”; once the dividends end, “there are no good businesses.”

The first phase of dividends has ended.

Recognizing the reality of “living well” versus “surviving” helps us better discuss this issue:

Should I give up existing operations and switch to a new industry?

At this point, I recommend you look at three indicators: individual ROI, industry CAGR, and market average return.

What is individual ROI?

Let me give an example:

Xiao Li owns a small to medium sock factory in a city in Zhejiang Province.

This sock factory was run by Xiao Li’s father, with over 20 years of history.

Back then, Xiao Li’s father used his unique vision and meticulous craftsmanship to make the factory highly profitable, but in recent years, things have changed.

Young people are increasingly unwilling to work in factories, recruiting workers is difficult, and profits are thinning, like a razor blade.

Xiao Li looks at the busy but exhausted workers remaining in the factory, filled with worry.

Recent events have further depressed him.

Because of a bold decision, the factory lost 5 million yuan. Cash flow was severely impacted. Xiao Li regrets it deeply.

But Xiao Li also notices that many sock factories in the industry seem to be facing the same difficulties in these two years.

Walking through the town at night, the streetlights cast on his face, he asks himself:

“Should I give up and switch industries?”

If it were you, how would you decide?

Option A: Drop the old baggage and start anew in a different industry. But the new industry is complex, and you know nothing about it—recklessly jumping in is almost suicidal.

Option B: Stick to the old business and watch your father’s lifelong efforts decline.

And it seems you are powerless to change anything.

Transformation is suicide; not transforming is waiting to die.

The greatest torment in the world is helplessness.

Sigh, it’s like “a gentle breeze blows into the bottle of courage, but the heart turns to ash.”

Is there no new option?

Xiao Li doesn’t know, so he decides to go out, meet more people, and exchange ideas.

By chance, he notices a W sock factory in the industry, run by a young factory director who also inherited the family business but is thriving.

Most importantly, in these tough years, they are still profitable, even experiencing consecutive years of doubling growth.

Do they have some secret?

It shouldn’t be. We’ve been in the sock business for over 20 years; what secrets could we possibly not know?

Xiao Li can’t figure it out, so he arranges to meet the W sock factory owner for a good meal and humble advice.

The owner says: “We don’t really have any secrets. It’s just about continuously improving our operations based on customer needs. Profit comes from management, profit comes from innovation.”

That might sound vague, so let me give an example:

“Most manufacturers used to produce socks with little to no innovation for decades.

Everyone thought socks are just worn inside shoes, and who would keep looking at socks anyway?

So, socks were just socks—meeting basic functions, just able to be worn.

Socks with loose threads, not durable, dull, no design sense—these weren’t big issues, and no one cared.

But, just because users don’t care doesn’t mean they don’t have needs.

For example, sweat-absorbing and odor-resistant, stylish designs, suitable for business meetings, anti-run, heated in winter, cooling in summer, artistic patterns, collaborations with trendy brands…

Even simple socks can meet diverse customer needs.

Let me give another example: women’s stockings.

Can you name some top brands?

You probably can’t recall the leading brands focusing on women’s stockings.

See? There’s demand, but the market isn’t sufficiently satisfied—this could be a category opportunity.

In recent years, I’ve been making socks with design and aesthetic appeal, upgrading factories with digital intelligence, and growing the cotton sock category from 100 million to over 1 billion yuan.”

Hearing this, Xiao Li, in the scorching summer heat, suddenly broke out in cold sweat.

He realized that the profit decline in his company wasn’t due to the industry but his own management approach.

Several factors affecting company profits

In other words, it’s not the environment or unprofitability of the business, but:

You are no longer making money.

This is individual ROI.

You initially thought the industry was bad, then blamed the market, only to find out that the real problem was yourself.

Industry average ROI is rising; the market is just fluctuating normally.

Dividends will always disappear. When the wave recedes, you’ll see who’s swimming naked.

What should you do then?

Protect your business, safeguard your cash flow.

Not switch industries or escape, but go all in. Act.

If you can’t swim, changing pools won’t help.

The key is: get in the water. Change your posture, learn the right techniques.

Then, try, innovate, and break through.

But there’s also a real possibility: what if my industry truly isn’t viable?

I work hard and am diligent, but I’m earning crumbs on a rotten track.

What should I decide then?

Industry CAGR

At this point, I suggest you look at the industry’s compound annual growth rate.

Let me give an example.

In 2008, Xiao Wang and Xiao Zhang graduated from university. They are childhood friends and classmates, with similar family backgrounds.

After graduation, Xiao Zhang joined a mobile game company, which kept growing. After a few years of effort, he was promoted to manager with a salary increase.

Xiao Wang chose to work at a chain restaurant brand, also working hard and becoming a manager after a few years.

But after a few years, Xiao Zhang’s total annual income exceeded 1 million yuan, while Xiao Wang’s was less than 300,000 yuan.

Why, with similar effort and performance, is there such a big income gap?

The key is the different industry CAGR.

Industry CAGR varies

Note the timing: 2008, the era of widespread mobile internet and smartphones was dawning.

The mobile game market was growing rapidly every year.

Before smartphones, what were phones like?

2G, 3G networks, browsing web pages, mainly calls and texts, with a built-in Tetris game—users played happily.

But with infrastructure improvements and 4G upgrades, the mobile game market exploded.

What about the restaurant industry?

We often measure industry concentration using the CR (Concentration Ratio), which indicates market dominance.

If the top 8 companies hold over 20% of the market, the industry is considered concentrated.

Yum China’s annual revenue is around 60 billion yuan, while China’s entire catering industry is nearly 5 trillion yuan. The top 8 companies combined hold less than 8%.

So, the restaurant industry is highly fragmented, which is why it has persisted over time.

The industry’s CAGR is not comparable to the growth of the gaming market.

Suppose there are two industries:

Industry A’s CAGR is over 100%, Industry B’s is around 10%.

If you choose the 10% industry and your friend chooses the 100% industry,

No matter how hard you try, in the face of industry trends, it’s almost impossible to catch up.

In terms of income and growth potential, you’ll struggle to surpass your friend.

Another example:

You produce mass-market cosmetics. Recently, your company’s growth seems to slow down, and you’re anxious.

Your friend makes high-end cosmetics, which still grow steadily.

You can’t understand why—your effort, execution, and appearance aren’t inferior.

But just look at the data:

According to Zhongtai Securities, from 2016 to 2020, high-end cosmetics sales grew at a CAGR of 25.7%, while mass-market cosmetics only grew at 5.8%.

The growth gap between the two tracks is obvious

When you’re stuck in a low-growth industry, it’s natural that your growth stalls.

When your industry’s CAGR is low, but your resources and capabilities match a new track,

It’s time to consider switching industries.

After switching, to seize new dividends, operational ability becomes crucial.

In the past, you might have made money by luck—catching the right trend and rising quickly.

But easy money often leads people to mistake luck for skill. At this point, reckless investments and blind expansion can wipe out the gains.

During the initial rise, companies often rely on a fighting spirit—daring to take risks, control costs, and hide many problems.

But this growth during dividends masks many issues.

During dividend periods, many problems are hidden

You can afford to experiment and make mistakes, but once you enter a new industry, operational efficiency and management become critical.

This stage requires minimizing mistakes, even avoiding errors.

Reduce costs, improve organizational capacity, build assets, strengthen teams.

Are your budgeting systems in place? Cost controls refined? Organizational structure rational?

Ask yourself these questions

Every penny saved matters.

Small savings add up—every detail counts.

Seek efficiency from management, growth from organization.

What if the overall market is in a slow, stable phase?

Looking at industries with matching resources and capabilities, everyone’s life seems similar.

What should I do when caught between options?

Market Return

First, market fluctuations are normal.

Regardless of good or bad environments, some do well, others don’t.

Suppose the overall economy enters a slow, stable phase, with sluggish growth. Many might feel their business is losing ground, the market is tough.

But what if it’s not due to your effort or industry problems? What then?

This is when you should protect your core business.

Because when economic growth slows, a harsh reality emerges:

Many industry players will be ruthlessly pushed out.

For example: Industry A has 100 people, with an average profit margin of 10-15%. Some are high, some low.

But if profits drop from 10-15% to around 5%, about 30-50 players will be forced out.

Those making big money now make less; those making less stop earning; those losing money will go bankrupt.

Bankrupt players will be pushed out.

When the market becomes too difficult to survive, what do these people do?

They will likely scramble into other seemingly promising industries they can handle.

From your perspective, the weaker players in your industry are eliminated, but you’ll also see new competitors flooding in.

So, your most important decision isn’t how to enter others’ industries.

It’s how to defend your core business while you still have profits.

Because there will be people willing to risk everything to snatch your business.

When many businesses fail, they might enter your industry, competing with extremely low margins to steal your customers.

Because you want to make money.

And they just want to survive.

The smartest strategy is to focus on cash flow, protect your core business, key clients, and treat customer needs as a strategic layout for future actions, solving all problems encountered in service.

Absolutely safeguard your core business; don’t deviate.

Final thoughts

When market competition intensifies and changes accelerate, what should we do?

In the future, we may need to focus on cash flow and protect our core business.

In difficult times, many entrepreneurs look for big tricks.

But if they could just focus on fundamentals—setting goals, weekly meetings, one-on-one with employees, recruitment, core competitiveness, moat, values—they wouldn’t be so frantic in market changes.

So, in the coming period, return to basics: focus on cash, protect your business, build assets, strengthen your team.

Excel in your niche, go deep rather than wide.

Reduce unnecessary talk about internet jargon, cut ineffective meetings.

Don’t expect magic tricks or secret weapons.

Re-understand your business, human nature, employees, and management.

Put in more effort, stay grounded, and do the right things consistently.

Only by working steadily can you navigate cycles and grow against the trend.

Best wishes.