The Cash Cow Business
Today business adventures are split into four categories that depict how they are faring financially. Everyone wants a business that is a “Cash Cow” because this type of business creates revenue continuously. The other categories are Star, question mark, and dog. The beauty of a “Cash Cow” is that it will constantly produce a good cash flow without having to invest capital to maintain its existence. This type of revenue can be a standalone business or exist within a business that has other market shares.
How the Term Started
The idea of the “Cash Cow” began as a metaphor for the farmer’s dairy cow. This cow produced milk over its life time with little to no maintenance. When the cost of the cow had been earned the cow still gave its milk bringing in a profit for the farmer. In business a “Cash Cow” will provide the business owner constant cash flow with no investment capital needed. The positive flow of constant income over its lifespan makes the product or service a business “Cash Cow.”
Introduction of the BCG Growth-Share Matrix
The Boston Consulting Group introduced what they called the BCG growth-share matrix into the business world. The idea was to classify the different facets of business so that financial agents would be able to explain and understand how the business or products are progressing. The terms were marked as:
- Star: the best example of a very prosperous business or product
- Question Mark: possibility of gaining good returns
- Dog: not likely to go anywhere and should be terminated when able
- Cash Cow: the type of business that will pay for itself and still bring profits
Most businesses like to have the business format of Star and “Cash Cow” together in order to have success in their business. A business fears dogs and question marks because they could soon go under without the help of a star or “Cash Cow.” It is certain that they will work less efficient needing other resources to keep them afloat.
Defining The Cash Cow
The “Cash Cow” thrives in a mature slow-growth industry. They usually take up the larger share of the company’s market but require little investment to keep going. Companies like Apple for instance, are “Cash Cows” because they are well-established in their niche of wireless gadgets. They offer different product lines within the company which adds to their ability to increase growth. This type of company is usually in for long period of time proving that they have the “Cash Cow”.
Summary
In retrospect, everyone wants the “Cash Cow” type of business but finding one can be difficult. Many of those types of businesses are in electronics and the internet today. Silicon Valley has taken over the chips and is therefore not leaving much left for those who want a stake in a “Cash Cow”. However, there are many people who have built star businesses earning millions of dollars. The life cycle of a star business may not be as continuous as the “Cash Cow” but it still proves to be very profitable.
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