Trouble with the S curve - predicting the lifecycle of a business

The S curve is a perfect design for a fishing hook and to hang a curtain from but what does it have to do with being able to tell how long a business could probably survive for?

A lot as it happens.

The S curve – named for its distinctive shape or after the Sigmoid Function – is a mathematical term but it’s also been successfully adapted to accurately plot the lifespan of a company through predictable sections. 

 

The theory is that every stage of a business – formation, growth, maturity, end – can be placed at a point on the curve. 

 

The S curve doesn’t simply refer to profits or other fundamentals, after all, several companies have been profitable before their demise.

 

It can also apply beyond businesses to careers, cities, countries, even civilizations – everything can be positioned at one point on the curve. 

 

Forward thinking business leaders need to understand that in order for a business not just to survive but thrive, it has to not just elongate the S in perpetuity but make the leap from one S curve to another from a peak and begin the cycle of birth and growth again before the inevitable downturn. 

 

Changes to business and society mean that the strategy of staying put is both untenable and unsustainable – this year being the perfect example – eventually there will be a drop-off that will usually prove terminal. 

 

Let’s take Apple as an example. Yes, the past twenty years might look like a constant upward trajectory but this is only because they successfully made the leap between S curves using various products to do so.   

 

The iPod was a phenomenal success but eventually the market reached saturation as most interested customers had one and they had to innovate in a different direction.  

 

They researched and developed the iPhone and you can follow the S curve in action once again. 

 

In the 1950s, the average lifespan for a top company was 60 years. 

 

Today that has reduced to approximately ten. 

 

True, not every company fails after this length, or even reaches it, but they may be bought, acquired or liquidated so the growth ends regardless. 

 

Following Covid-19, this average lifespan could fall even further as other factors come into being such as lowered barriers to entry to new businesses, more funding for entrepreneurs, technological and societal changes (home working, pandemic response and more). 

 

Ultimately, companies that survive and thrive over years have done it through reinventing themselves and adapting to new markets and conditions. 

 

The Inflection Point

 

The key part of any S curve is when initial growth slows and begins to taper off. 

 

This is the point when a business has to innovate to survive and stay relevant. If it happens successfully then the growth curve resumes its upward trajectory and becomes positive again. 

 

This is known as the inflection point. 

 

If the company doesn’t recognise this or fails to act to stimulate or manufacture demand then the downturn becomes permanent and it becomes a matter of managing the company’s decline. 

 

There are several elements that can affect growth and nearly all can lead to a business’s first inflection point. These include:-

 

  • Lack of “ownership” – not actual ownership which is easy to ascertain but a shared sense of belonging that founders and early employees have that can drive it to quick initial success.  As a company matures, more employees come on board, some original ones leave, and if the initial influence is diluted then subsequent drive and ambition can also wane with it as it becomes just another job.
  • Talent scaling – Starting a company is hard enough but maintaining and improving on initial success can be even harder.  How does a company recruit the right staff not only to fulfill company goals but that are a good fit with company culture and practice?  Can they be trained and moulded to fit the company or are they simply “here for the money?” You can survive and even grow with workers with a 9-to-5 mindset for a while but it’s the key workers that will get you to the top that you need to locate, recruit, train and retain to maintain growth.
  • Founders ceiling – Some companies can be pulled to success through sheer force of will. A driven, talented and charismatic founder can sprinkle stardust sufficiently throughout the business to inspire and infect others with what’s needed during those exhausting and exhilarating early months. Founders are also only human too and eventually they can find their batteries running down and questioning their passion and drive for the business at certain points. Sometimes a company has to scale and adapt and a founder finds it impossible to change with it and ends up leaving. Others take this as an opportunity to cling to their baby even tighter and micromanage which disrupts the growth and natural flow required to expand. It’s a tricky balancing act.
  • Listening to customers – Smaller, more agile companies are very adept at listening to and responding to customers. It drives initial growth although some companies lose sight of this relationship as they grow and scale. It then becomes more difficult to respond to changing customer demands or understanding their signals so by the time the message gets through they may have already gone to a competitor who does listen and respond to them. 
  • A “good enough” mousetrap beats a perfect one – Innovation is important but it has its place in the hierarchy of demands on a company. Some organisations get caught in the perfection loop and seek to optimise products, processes, relationships at the expense of old-fashioned making and actually selling stuff.
  • Economic tides and black swans – a business can’t control the wider economic factors buffeting it from outside but has to adapt to them all the same. Micro and macro trends and shifts can ruin otherwise viable businesses or can turn a middling one into a superstar by being in the right place at the right time with the right product and people behind it. It would also be remiss not to mention one-off “black swan” events such as disasters including pandemics, terrorism, fires and tornados that you’d usually enjoy watching in a movie until you discover it’s your premises in ruins.
  • Finance – money is the lifeblood of business and every company needs access to liquidity in order to function. External issues can exacerbate underlying weaknesses for sure, but ultimately if you aren’t making money then no matter how promising your business idea then you’re on borrowed time. 

 

It’s why we offer a range of advisory and professional services to help any business no matter which stage of the S curve they find themselves on. 

 

We can help businesses looking to grow and expand as well as helping those that feel they are stuck in a rut and need inspiration and financial injection to help. 

If it’s time to finish the business’s journey then we can help work through this too, helping you choose the most efficient and effective method which will allow you to begin your next exciting S curve even sooner.

 

Get in touch with us  to arrange your free initial consultation and we’ll take care of the rest.