What You Need to Know About “S Curves”… No, it’s Not about Baseball
We can all debate about what the most important goal in business should be. It’s always been my opinion that the most important goal is to “create a sustainable competitive advantage”. From that point, all things follow. The problem is that of all the goals and objectives you can identify creating a sustainable competitive advantage may be the most elusive and most difficult to achieve. However, understanding the concept of “business cycles” and where your company sits in the cycle can provide you with a powerful tool to help you avoid the dreaded “stall point”.
First, let’s understand what the “S Curve” and why “Stall Points” need to be avoided at all costs. Every business begins, develops, and disappears along a consistent pattern sometimes referred to as a business cycle. This business cycle follows the pattern of an “S”, thus the term “S Curve”. The lowest point on the S Curve represents the start-up position as the enterprise searches for a value proposition that is desired by customers and that differentiates it from the competition. Assuming the start-up phase is successful the business then moves into the growth phase. This part of the cycle is characterized by “optimization” as management focuses on leveraging the success of the value proposition. Typically, the growth phase involves significant investments in equipment and staff. Often debt begins to grow. Management is totally focused on harvesting the profit potential of the original value proposition without understanding that without developing a fresh, updated and more relevant value proposition their competitive advantage is quickly disappearing. They are headed to the last part of the business cycle, the crown of the S Curve, the must be avoided “Stall Point”.
Why be so concerned about hitting a Stall Point? In their book, Stall Points, Matthew Olson and Derek Van Bever talk about the insidious nature of Stall Points. They point out –
- That Stall Points are hard to predict; most come as a complete surprise to management.
- Most organizations’ growth actually accelerate into a Stall Point.
- Recovery must come quickly or recovery may not come at all.
- Only 7% of the companies they studied were able to return to growth.
- The average company they studied lost 74% of its market capitalization in the decade following the Stall Point.
Fortunately, there are steps you can take to avoid falling into this trap, and there are steps you can take if you hit a Stall Point… both of which I am happy to share… on the following condition. I only ask that you respond to this blog. Write a comment. Let me know if you would like me to follow up with more information. It’s as simple as that. If I don’t hear from you I will assume this blog has reached its Stall Point.