by Margaret Heffernan - Friday, 7th September 2007 -

I’ve been closely involved with two such companies recently. The first company makes documentaries for the BBC, ITV, Channel 4 and Channel 5.

For a few years now, the word has been that the market for documentaries is drying up – terrestrial broadcasters want mass audience entertainment. But this company has stuck to its guns, made serious programmes, won awards and audiences.

It thought to buck the trend. But right now, it has no business. It’s trying to see if some of the US cable channels might want some of its ideas but it’s late to be initiating relationships with foreign customers who famously take months to reach decisions.

In the meantime, there’s no money for payroll or for the rent.

The second business is a dairy farm. The Jefferys have been producing milk in Somerset for generations.

They’ve confronted all the usual demons: tuberculosis, feckless employees, mastitis. But they’ve persevered and expanded. Until now. Last month, Andy sold the herd and withdrew from dairy farming completely.

Why? Because the price of milk had dropped from 22p a litre to 17p a litre. The supermarkets he supplied announced that, as their fuel costs were going up, the price they were prepared to pay for milk was going down.

For Andy to keep going would have meant losing £73,000 a year. The point in both instances is this: the market changed and there was nothing either business could do to influence that change.

The only power either entrepreneur had was the power to decide how to respond. In the case of the TV company, the response at first was to deny what everyone was saying and to hope that proven excellence and awards would count for something.

They haven’t. In the case of the dairy, the response has been as swift as the market change itself. The business doesn’t pay – it has to go. Andy Jeffery has an advantage in having diversified early.

He and his wife run a stunningly successful farm shop and café and they produce acres of organic vegetables – at a moment when that market has exploded. So they’ve kept ahead of the game by staying highly tuned into the market and not trying to argue with it.

In theory, the TV company could have done the same. It discussed getting into different markets – game shows, reality TV. But that would have meant hiring utterly different talent, changing the brand and changing the company ethos entirely.

Sometimes diversification is just too hard. I can’t think of any buggy whip makers who successfully diversified into internal combustion engines.

What lessons are in this for the rest of us? The first relates to what I think of as business antennae. Many entrepreneurs go into business because they identify a market need that no one else has spotted.

But once the business is up and running, the founder can become focused on what is happening inside the business, not outside it. It is what the Harvard economist Shoshana Zuboff calls managerial narcissism.

Never turn off those antennae. The second lesson is that, when the market does change, respond fast. If you can save your name and some money, you will live to fight another day.

And the final lesson these stories demonstrate is that the market is the master. This is a hard lesson to learn, especially for entrepreneurs whose defining characteristic is the desire to be master of their own fate.

We may start our businesses because we want to be in charge, but there isn’t a company in the world that doesn’t serve the market. That is, as long as it wants to stay in business.