Doug Davidoff
I was speaking with a group of CEOs in Detroit today. The speaker before me had been discussing the typical business cycle: envision – growth – mature – decline – envision – etc. As I was talking about the keys to creating demand, I commented that I don’t believe that the traditional business cycle is a requirement. I believe that it can, in fact, be broken. I shared that my business cycle looked more like this: envision – growth – mature/envision – growth – mature/envision – growth – etc.
I asked the group, “while companies typically wait for decline before they take the envisioning and new growth phases seriously, why couldn’t they envision the next, potentially disruptive, growth cycle while they were in the growth or mature stages of the traditional cycle?” I shared how companies like Intel do exactly this – they strive to make their offerings irrelevant while their current offerings are highly profitable, not afterward.
One CEO challenged me, asking if there doesn’t come a time where a business can’t envision and trigger a new growth cycle before the decline. He asked if there weren’t many cases where a business needs to go through the decline stage and the cutting and retrenchment that goes with it, while it creates new markets and new offerings allowing it to potentially grow again.
I responded that a) growth by no means is a guarantee or an entitlement to business. Certainly times come where the fundamental purpose of a business is no longer relevant and growth fades and disappears – trees don’t grow to the sky and neither do businesses. I added that b) if a business stays maniacally focused on who its customers are and continues to build a deeper and deeper understanding of their customers, they can reinvent themselves before the decline happens.
I believe that this answer is on-target 95% of the time. As I’ve had more time to think about the question, I realize that there is a third part to the answer. If a business is in the growth and early mature phase, and is unable to envision the next growth and maturity phase, then it is time to sell the business.
This is true for two reasons. First, it is at this point that the business is at it’s highest valuation and is the most attractive to buyers. Of course, the buyers are not necessarily wise here, but that’s not the seller’s problem. Second, the seller (or the investors) would be far better off taking money from a sale and reinvesting it in another company or set of offerings that are in the envision or growth stages.
There are only three reasons that a business doesn’t follow this advice:
1. Hubris
2. Ignorance
3. The misguided belief that a business can create the next growth business while “milking” the decline cycle.
The reason you can’t do both is because the declining business eats your resources when the new growth business most needs it, and the declining business diverts attention and focus when the new business most needs your attention.
Even though the declining business is declining, it will still represent more revenue – and even profits – than the growing business. This makes it the master. So while you’re balancing the needs of the declining business with the needs of the new business – two types of competitors take you out. The upstart, who has no declining business to worry about; or your other established competitors (or worse yet the one who is consolidating the industry) who’s dedicated to the cash cow. Just take a look at Merrill Lynch (before being bought by Bank of America), Time Warner, or Dell to see how this game plays out.
The time to focus on the “next big thing” is while you are experiencing success, not when you are struggling. Please don’t misunderstand this point. If the next big thing is not directly aimed at your current core market, then it’s a distraction and you should follow the third part of my answer – sell. If you master the first unbreakable rule for creating demand, which requires a maniacal focus on knowing and understanding your core market better than your core market understands itself, you can initiate new growth cycles while you’re in the current one.
