Cannibalize your own product before someone else does

Picture this: you sell the most successful product in your company's history. People line up for it, the margins are great, and everyone on your team is proud of it. Now picture launching something yourself that makes it obsolete overnight. It sounds insane, almost like self-sabotage. Yet that exact kind of insanity is what has kept certain companies alive for decades, while others that clung to their golden goose ended up as cautionary tales.

The iPhone ate the iPod

In the mid two-thousands, the iPod was Apple's crown jewel. Tens of millions sold every year, the beating heart of the business. Any careful executive would have protected it at all costs. Then in 2007 Apple unveiled the iPhone, a phone that, among many other things, played music. In other words, it had an iPod baked right in.

Apple's reasoning was blunt and simple: if we don't build the device that replaces the iPod, somebody else will. And they'd rather keep the sale of the new product than hand it to a rival. The iPhone did cannibalize the iPod, but in exchange Apple became one of the most valuable companies on earth. The iPod slowly faded away, and nobody minded, because its replacement came from the same house.

If you don't make your own product obsolete, the market will do it for you, and it won't give you any warning.

Netflix killed its own profitable business

Netflix started out mailing DVDs. It was a business that worked: happy subscribers, steady revenue, no big surprises. But the internet was starting to let people watch video without downloading anything, and leadership saw that the postal model had an expiration date.

Instead of squeezing the DVD business until the very end, Netflix began pushing streaming, knowing full well it would cannibalize its own revenue. The transition was awkward and at one point even clumsy, but it let them lead the internet video era rather than become the company that shipped discs nobody wanted anymore. Blockbuster, their big rival back then, did the opposite: it defended its physical stores until it disappeared.

Why it's so hard to do

Cannibalizing your own product runs against every instinct. You're giving up sure sales today for an uncertain bet tomorrow. The team that lives off the old product pushes back, the short-term numbers look worse, and there's always someone who says: why mess with what works.

The trouble is that waiting for sales to drop before you react is almost always too late. By the time the decline shows up in the numbers, the competitor who did dare is already years ahead. The signals that it's worth moving usually look like this:

• There's a newer technology or way of working that's more convenient for the customer, even if it seems immature today.
• Your flagship product defends a fat margin more out of habit than out of real value.
• Some small competitor is experimenting with the model you dismissed out of fear.
• Your best customers are starting to ask for something your current product can't deliver.
• You catch yourself saying "that'll never catch on" about a trend that's already growing.

The takeaway for your business

You don't have to be Apple or Netflix to use this. If you have a service that puts food on the table, ask yourself what new version of that service would steal your customers, and consider building it yourself first. The barbershop that lived on house calls might need a storefront; the restaurant that only served dine-in might need to launch its own delivery before an app grabs that sale. Better for the customer to move from your left hand to your right than into a stranger's.

Cannibalizing isn't about destroying what you have on a whim. It's about deciding, with a cool head, who gets your next customer: you or the competition. And that, more than any single product, is what keeps a business alive for the long run.