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Last week the CEO of Groupon was fired after the company’s share price dropped 24% in one day following a poor earnings report.  The Chicago based company pioneered daily coupon deals for local companies on the Internet.  But in today’s world, when you come up with a good idea there is immediately someone behind you devising  a cheaper, faster, better way to do what you do – or replace you entirely; and it appears that Groupon’s business model has fallen victim to this cycle. 

Companies have always been subject to business competition.  But the lifecycle of their rise, success and downfall seemed longer in the past.  Polaroid created instant photography in 1948 and was a longtime leader in the industry before filing for bankruptcy in 2001.  Kmart pioneered discount retailing with its founding in 1899 under the S.S.Kresge name, and acquired Walden Book, OfficeMax and Borders Books before beginning a slide that ended in its 2002 Chapter 11 filing.  Wang Laboratories, a computer company founded in 1951, was the developer of scientific calculators in 1965 and word processors in 1978, but filed for bankruptcy protection in 1992.  All three were featured in the business bestseller, In Search of Excellence in 1982. The speed of change in business has increased significantly since then. 

In the past, holding a portfolio of stocks representing well-run companies with industry dominance might have been a reasonably safe investment strategy. But in today’s world, even the most well researched investments can be undermined by the speed at which business models fail and new technologies emerge.  At Ohio State, research conducted in their nanotechnology department currently includes 3-D printing of medical implants.  Who knows what impact this will have on companies that manufacture hip, knee and other implant devices, or what changes it will bring to health care overall?

It’s increasingly difficult to know where the next big idea will come from, how long the company that develops it will retain their competitive edge, how profitable it will be for them – and for how long.The best way we know to capture the returns of emerging technologies and ideas is to own a broadly diversified portfolio of micro and large companies, and be prepared to adjust for the changes that will inevitably come.