Windfall economics

In 1997 a company based in London’s Soho had sales of £13.7m. After 10 years of operating it had established itself as a successful niche player in a market dominated by global giants. Progress was steady rather than meteoric; but that was about to change.

In the same year it brought a new product to market. Totally unexpectedly, the product swept the world and transformed the company. In 2002, the company’s sales were £68m – an increase of 500 per cent over 1997.

The company is Bloomsbury Publishing. Its runaway success, Harry Potter. The four books in the series have now sold over 130 million copies world-wide. Bloomsbury is the latest company to face one of the business world’s most underestimated challenges: something we call windfall economics.

A business windfall is an unexpected success. It begins with a single product or brand that generates revenues far in excess of those anticipated or normal for the size of the company or the market.

Windfalls bring obvious good news. Sales rocket. Money floods in. The result is a transformed business. Nothing is ever the same again.

How companies create windfalls has been lengthily analysed. They innovate, they experiment, they take risks, they nurture star performers. Sometimes they simply get lucky. Everyone hopes to sit under an apple tree and watch as a bounteous harvest falls to the ground.

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