GoPro's recent loss of $107.5 million is certainly dramatic. After all, last year it announced a profit of $16.8 million. However, it's also a cautionary tale for all new companies that find themselves in a similarly precarious financial position after enjoying rapid financial success. When this happens, it's time to take a hard look at the business model.
The big question the company should ask is whether it aspires to be more like Crocs, Chrysler, or Apple. These three companies have all found varying degrees of success through very different models. Each offers substantial pros and cons so it is important for GoPro to know its vision and find the right fit.
The Crocs model - finding a new normal
When Crocs launched its unique line of shoes in the early 2000s, the products became extremely popular. At one point, its stock price was $75 per share, however it soon fell to $40 per share as sales plateaued then declined, and is now around $10 per share. The problem was that part of the initial sales came from the trendiness of the shoes, and this portion of the sales was not sustainable. When the trend dissipated, the trendy customers left. The customers who remained loyal were those who needed comfortable shoes that were easy to slip on and off, easy to clean, and provided arch support. Think kids, gardeners, healthcare workers, oil rig workers, and people with orthotic needs.
GoPro can relate to this story. After selling its portable camera to the masses, the number of sales substantially decreased. Unless you are into extreme sports and really want a camera on your helmet to film your experience, you probably aren't in the market for a second GoPro, even if it has more features.
The long-term answer for Crocs was to focus on its niche market and to accept the $10 per share price as the new normal. Crocs is still reasonably successful, but the definition of success has changed. GoPro -and other companies in this position -- could follow this model and survive. It could accept a lower stock price and focus on improving its core product, selling the camera at a premium price to outdoor adventure enthusiasts.
The Chrysler model - bet the house
Another model is Chrysler, which saved itself with a bet-the-house approach. Back in the early 1980s, Chrysler's future was very uncertain - it was basically on the brink of death. With nothing to lose, a company designer pitched the concept of the family minivan. In a last ditch effort to survive, the company launched the first ever minivan - and it was like pulling a rabbit out of a magician's hat. The strategy worked and a wildly successful category of vehicles was introduced to the market, with Chrysler as the leader. Nearly 35 years later, Chrysler still leads this category despite fierce competition from all the major carmakers, as the reviews for the 2017 Pacifica demonstrate.
Can GoPro pull a rabbit out of its hat? Does it have a new product to launch that will disrupt the industry? It is currently looking at cameras for drones and software to make uploading and sharing photos easier, but so far we haven't seen the rabbit.
The Apple model - promising consistent innovation
The third model is Apple. There are many reasons for Apple's long-term success, but two strategies stand out - and can be replicated by other companies. The first is that it offers a very high-quality product -- with a limited lifespan. I've bought the iPhone 2, 4, 5s and 6. It's not that I'm a tech junky or super fan, but that my iPhone tends to die at about the two-year mark, whether it be a flickering screen, dying battery, or worn-out home button. With the price of $700 hidden in my mobile carrier's bill every month, it doesn't feel like an unreasonable cost to pay for a new cell phone.
The second part of its strategy is that Apple promises innovation every October. Customers expect to see a new model announced at the same time every year, and Apple doesn't disappoint. It has committed to staying relevant with new products delivered (with much hype) on a consistent cycle. The regular cycle of incremental improvements means someone like me is less likely to delay my purchase by six to nine months.
Are these viable strategies for GoPro? It is unlikely that the majority of first-time GoPro buyers are going to be excited to replace the camera every two years. The price point for the camera initially was $400, which limits the market. Hurting demand further was the product's quality, as there were problems with overheating and difficulties transferring pictures and video. It launched a new version that was supposed to be easier to use and at a lower price, but consumer reviews have been mixed.
As for following an innovation schedule, GoPro needs to carefully think about whether this is realistic. The company is looking at cameras for droids and software, but will those potential products be the next portable camera - and what will come after that? New products would make investors happy, but companies following this model need to make sure they aren't overpromising and can deliver year after year.
Pick a vision
Will GoPro follow Crocs and settle into a niche market with slower, but sustainable sales? Will it make a Hail Mary pass and disrupt the action camera industry? Or will it promise and deliver innovation year after year? Whatever direction it takes, the lesson for all startups is to think long and hard about their vision and what type of company they want to (and realistically can) become. The challenge for entrepreneurs is that by picking a single model, someone is going to be disappointed. The art is in not disappointing customers and investors at the same time.
John Carrier is a senior lecturer in the System Dynamics Group at the MIT Sloan School of Management.