New (Sometimes Great) Products and Bad Businesses

You often see companies release a great, innovative product that's not profitable -- so the product eventually gets discontinued or the company goes out of business. Sometimes this is because the great new product incorporates technologies that are too expensive to sell in quantities sufficient to generate a bottom line profit. Or the product is sold in quantities sufficient to generate a profit but never goes beyond a niche market because of its high price -- incumbents aren't really threatened in this scenario.

Entrants with an approach that could be a low end disruption often face a similar problem: the company has a new, low cost way of addressing a job-to-be-done but never improves its product enough to accrue the pricing power needed to generate a profit. So the company hovers around breakeven profits and often goes out of business. 

Conversely, you see lots of low growth, "cigar butt" companies that persist with a mediocre but profitable product. These companies often survive -- and stay profitable -- despite pricier, technically superior new products or new, low cost approaches to the problem. In fact, the company with the superior, pricey product or the innovative low cost approach is often the one that goes out of business, while the cigar butt company continues operating. So a superior new product or low end approach doesn't necessarily translate into a "good business," sometimes because the new offering/approach is too expensive or overserving or can't generate the profits needed for product improvement.

You could define a good business as one where the product/service targets the job-to-be-done well enough -- in terms of product quality, convenience, price, etc. -- for the company to sell the product at an attractive profit. An attractive profit is one where the return on capital employed (capital employed meaning working capital plus net fixed assets) is high enough to justify continued capital expenditures/investment. Otherwise continued investment is a waste of time, money, and talent that could be productively invested elsewhere. Innovative products or approaches that can't generate an attractive profit -- an attractive return on capital employed -- within a reasonable period of time may not be as promising as they first appear.