Why isn’t the BCG matrix dead as a framework? I still consistently find that my students have been exposed to it (generally in Marketing). They don’t even understand that it is a framework for internal capital markets (where firms add value by serving as a source of funding) or that it is hopelessly flawed. It’s a dog, divest right away. If the sale generates cash, funnel it to any other management framework (even SWOT) and I’m sure it will create value.
Internal capital markets only create value when they perform better than external capital markets. Generally, this is because the parent company has better information than external markets about the business. I often describe how Big Pharma companies fund biotech startups — their inside knowledge of the science and downstream capabilities help them understand the potential. As such, their expertise and private information allows them to invest much more efficiently than external capital markets.
Peter Klein points out that capital markets also fail when secrecy is required to buy time to implement an entrepreneurial strategy. He points to the example of Yekutiel Sherman’s Kickstarter campaign. His phone case/selfie stick (or StikBox) was being sold on AliExpress in China by copycats before he had even raised money to take it to market. It has since spread to other outlets like eBay and even Sears. The public disclosure required for his Kickstarter campaign assured that he would not realize the gains from his idea. Here is the Kickstarter video. You might also check out a related post on stolen IP where Kramer’s idea for a scent is stolen by Calvin Klein (no relation to Peter)
Contributed by Russ Coff and Peter Klein
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