Schafer: Glen Taylor sees money to be made at the Star Tribune

  • Article by: LEE SCHAFER , Star Tribune
  • Updated: July 3, 2014 - 11:41 AM

To understand why Glen Taylor is buying the Star Tribune, one suggestion is to pick up a classic Harvard Business Review article about the business of making vacuum tubes.

Yes, vacuum tubes.

This article appeared way back in 1983 under the title, “End-Game Strategies for Declining Industries.” Sounds dreary, but the article is actually hopeful in tone. Its point is that savvy owners can make money for a long time in an industry well past its peak — be it selling newspapers today or vacuum tubes in 1970.

This was groundbreaking thinking when it came out. Authors Kathryn Rudie Harrigan and Michael Porter wrote “End Game” because at the time there was only one conventional choice for managers in a declining industry — to “harvest,” by slashing costs and wringing out as much short-term profit as possible.

The authors found the case of vacuum tubes particularly interesting because the technology had been expected to quickly go away.

Vacuum tubes, small glass cylin­ders that control electric current flowing through a vacuum, were once used extensively in radios and TVs. Then the semiconductor came along, ushering in the era of “solid state electronics.”

Yet at the time of the article, several plants still produced vacuum tubes profitably.

The producers that did not harvest were able to carefully shut down excess plant capacity, picking up customers and product lines from less-capable or less-farsighted competitors. They were able to earn “satisfactorily high returns, particularly for declining businesses.”

As for the newspaper business, it’s been through just as much of a stomach-churning drop as producers of vacuum tubes saw in the 1960s. Advertising revenue for U.S. newspapers, print and online, has fallen from $48.7 billion in 2000 to less than half that last year.

Other components of newspaper revenue have held up better, but total revenue for the industry still declined last year, by 2.6 percent. And that was the best year since 2006.

It explains why Taylor, the Mankato entrepreneur best known as principal owner of the Minnesota Timberwolves, was able to buy the Star Tribune this week for less than 10 percent of what it sold for 16 years ago.

But while the industry’s best days may be behind it, good options remain for patient owners. One of the main lessons taught by the authors of “End Game” is the danger of acting too rashly.

The authors described one option as “quick divestment,” or getting out at the first sign of decline. Acting too quickly, though, may mean giving away for peanuts a business that could still make a lot of money.

Another strategy they called “niche,” which means shrinking to serve just the most profitable remaining customers.

For some businesses, they wrote, harvest is the right choice. When harvesting, the least-profitable customers are simply told to get lost, and the company deliberately lets its service quality slide for the rest. When there’s no more money to be made, management liquidates whatever is left.

Glen Taylor sure didn’t need a Harvard professor to explain to him that the newspaper business has been in decline. When Taylor first surfaced publicly as the probable buyer of the Star Tribune this spring, he told a reporter here he knew all about it.

“I’m in a lot of printing areas, and they are all difficult business areas,” he said. “I have just found out that if you’re the best in that area, then you can do quite well.”

The authors of the “End-Game Strategies” paper would recognize his thinking right away as one of their four strategic options. They called it the “leadership” strategy.

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