Profitable companies reinvent themselves time and time again. These companies stay ahead of the market. They are constantly re-tailoring their business model to reflect market changes, technological advancements, and changes to the economic climate.

This adaptability gives those companies an advantage. They have profit. That profit is capital that’s not tied to a liability, and can be used to fund research or invest in new ideas. That investment creates more profit that the company can use to reinvent itself again. The profit it makes from that reinvention is then used to reinvent the company again, and the cycle continues.

Microsoft is a prime example of a successful company that reinvents itself. In the beginning Microsoft’s core market was operating systems for personal computers. Later, they reinforced their position with secondary investments in application software.

During the internet boom, Microsoft made changes to their focus, and put new efforts into online services. The market shifted towards mobile devices, and so did Microsoft with the addition of Windows mobile. After that, they moved towards investing in cloud computing as it became an in demand product.

Large companies fail when they fall behind the market.

A failing company doesn’t have the luxury of profit. Usually all of a failing company’s revenue is being used to pay for liabilities, and it can only reinvest in itself using credit and reserve funds. This creates a dangerous situation, because as a company borrows more credit, their liabilities and expenses rise. As the expenses rise, they borrow more and spend more from their reserve. Once a company’s reserves are gone, and no more credit can be obtained, it falls into liquidation.

Executives will try to cut expenses and liquidate assets to save the company. Cutting losses is necessary to save a failing company, but that will only go so far. As the company liquidates failing assets, expenditures will go down, but revenues do not rise. The company is still losing money.

The company also needs to raise revenue as it cuts expenses. To do this, it has to reinvent itself, and find a profitable core. The only way regain profitability is to get ahead of the market. The company’s officers will have to come up with new ideas, and implement them in an effective way.

An example of a company reinventing itself is IBM. For the better part of the 20th century, IBM was a power house, and its core business was manufacturing mainframe computers. Leading into the 1990s, it fail behind the market, because it did not invest in personal computers. In 1993, it lost 8 billion dollars.

To reinvent itself, IBM changed its core business operations. It began to consult for governments and large organization. An organization will go to IBM with its problems, and IBM will use technology to fix their issues. It  also began offering web hosting services, and restructured its infrastructure production to focus on internet technology.

Without reinventing its core operations, IBM would have failed.

In short, for a successful business to stay successful, it needs to stay ahead of the market. This means reinventing itself as the economic climate changes. For a failing company to succeed, it needs to reinvent itself and find a profitable core operation.