The S-Curve of Business illustrates how old ways of doing business mature and then become superseded by newer ways. The S-Curve itself is based on a mathematical concept called the Sigmoidal curve. In the context of business, the curve graphically depicts how an organization grows over a typical life cycle.
Understanding the S-Curve of Business
A key argument of the curve is that sooner or later, most businesses will reach a period of stagnation – no matter how successful they were in the past.
At the point of stagnation, the business reaches an inflection point.
At this point, it will be forced to innovate to grow and remain competitive.
For executives, understanding where their business lies along the S-Curve is crucial.
If the business has already reached an inflection point – also referred to as a “stall point” – it has less than a 10% chance of fully recovering.
In the next section, we’ll discuss these terms at various points of the life cycle in more detail.
The stages of the S-Curve life cycle
Initially, start-up companies begin at the bottom of the curve with a product or service they are taking to market.
If they are lucky, their offering gains traction – albeit very slowly at first and then gradually quickening as more consumers become aware.
This is the first inflection point, where sales and revenue increase rapidly after an initial period of stagnation or low growth.
While growth will continue for some time, a host of internal or external factors will eventually cause growth to decrease and then taper off.
These factors include:
Market saturation.
The rising influence of a competitor.
Emerging technology that is more profitable.
A change in leadership resulting in poor management.
Here, the business encounters the second inflection point. At this point, a critical decision must be made.
For the growth curve to start anew and begin trending upward, the business must innovate and ride the wave of technological advancement.
Ultimately, a business at the second inflection point that then tries to innovate is already too late.
Inflection points must be identified before they occur so that businesses have adequate time to develop new products that have a high chance for success.
How do businesses commonly reach stall points?
External factors
Economy
Most businesses will find it hard to maintain growth during recessions since consumers are spending less.
Politics
When state or federal laws are enacted to regulate or ban certain products or services, businesses must have the ability to pivot quickly.
Trends
This is particularly prevalent in technology where trends shift quickly.
Examples of companies unknowingly reaching inflection points because of technology include Nokia, Blackberry, Xerox, and Kodak.
Internal factors
Dilution of focus
Many start-ups have visionary leaders whose sole intent is to serve their customers well.
But when companies become larger, focus and effort can become diluted – particularly as management becomes more convoluted.
Talent shortage
For whatever reason, some companies are hindered in their growth because they cannot source the required talent to make it happen.
Examples of S-Curve
Population growth of a country
As a country’s population grows, the growth rate typically builds momentum slowly.
Yet it accelerates during the middle of the S-curve while leveling off as the population reaches its maximum capacity.
The adoption of a new technology
When a new technology is introduced, it might take time before this technology becomes adopted by the masses.
In the initial stage of the technology adoption curve, its path it’s very steep. Yet when it does take off, it does that very quickly.
In his book, Crossing the Chasm, Geoffrey A. Moore shows a model that dissects and represents the stages of adoption of high-tech products. The model goes through five stages based on the psychographic features of customers at each stage: innovators, early adopters, early majority, late majority, and laggard.
Thus, here the slowly then suddenly saying works exceptionally well.
As the adoption rate increases rapidly, thus enabling technology to reach the masses, it eventually reaches a plateau as the technology won’t have any more market penetration.
An example is how smartphones took off and how today, they have become a saturated market, as there are billions of smartphones across the world.
The evolution of a market
Take the example of the iPhone; when it was launched, it didn’t pick up right on.
Indeed, Apple first launched the iPhone in 2007, and only when by 2008, when Apple launched the App Store in combination with the iPhone, the store worked as a jet engine for the iPhone to take off very quickly.
Yet, Apple’s iPhone success was built on the premise that the smartphone market had already been developed by other players like BlackBerry.
Thus, Apple wasn’t a first mover, but when it did enter the market, it took off very quickly.
Key takeaways
The S-Curve of Business allows a company to determine where it is on a typical growth life cycle, and adjust its strategies accordingly.
The S-Curve of Business life cycle consists of two inflection points. The second is the most critical, as it signifies that a business has reached a growth ceiling.
Inflection points are caused by a variety of factors relating to the economy, consumer trends, and talent shortages. Whatever the cause, managers must identify them ahead of time and develop strategies to maintain growth.
Business modelinnovation is about increasing the success of an organization with existing products and technologies by crafting a compelling value proposition able to propel a new business model to scale up customers and create a lasting competitive advantage. And it all starts by mastering the key customers.
The innovation loop is a methodology/framework derived from the Bell Labs, which produced innovation at scale throughout the 20th century. They learned how to leverage a hybrid innovation management model based on science, invention, engineering, and manufacturing at scale. By leveraging individual genius, creativity, and small/large groups.
According to how well defined is the problem and how well defined the domain, we have four main types of innovations: basic research (problem and domain or not well defined); breakthrough innovation (domain is not well defined, the problem is well defined); sustaining innovation (both problem and domain are well defined); and disruptive innovation (domain is well defined, the problem is not well defined).
That is a process that requires a continuous feedback loop to develop a valuable product and build a viable business model. Continuous innovation is a mindset where products and services are designed and delivered to tune them around the customers’ problem and not the technical solution of its founders.
Disruptive innovation as a term was first described by Clayton M. Christensen, an American academic and business consultant whom The Economist called “the most influential management thinker of his time.” Disruptive innovation describes the process by which a product or service takes hold at the bottom of a market and eventually displaces established competitors, products, firms, or alliances.
In a business world driven by technology and digitalization, competition is much more fluid, as innovation becomes a bottom-up approach that can come from anywhere. Thus, making it much harder to define the boundaries of existing markets. Therefore, a proper business competition analysis looks at customer, technology, distribution, and financial model overlaps. While at the same time looking at future potential intersections among industries that in the short-term seem unrelated.
Technological modeling is a discipline to provide the basis for companies to sustain innovation, thus developing incremental products. While also looking at breakthrough innovative products that can pave the way for long-term success. In a sort of Barbell Strategy, technological modeling suggests having a two-sided approach, on the one hand, to keep sustaining continuous innovation as a core part of the business model. On the other hand, it places bets on future developments that have the potential to break through and take a leap forward.
Sociologist E.M Rogers developed the Diffusion of Innovation Theory in 1962 with the premise that with enough time, tech products are adopted by wider society as a whole. People adopting those technologies are divided according to their psychologic profiles in five groups: innovators, early adopters, early majority, late majority, and laggards.
In the TED talk entitled “creative problem-solving in the face of extreme limits” Navi Radjou defined frugal innovation as “the ability to create more economic and social value using fewer resources. Frugal innovation is not about making do; it’s about making things better.” Indian people call it Jugaad, a Hindi word that means finding inexpensive solutions based on existing scarce resources to solve problems smartly.
A consumer brand company like Procter & Gamble (P&G) defines “Constructive Disruption” as: a willingness to change, adapt, and create new trends and technologies that will shape our industry for the future. According to P&G, it moves around four pillars: lean innovation, brand building, supply chain, and digitalization & data analytics.
In the FourWeekMBA growth matrix, you can apply growth for existing customers by tackling the same problems (gain mode). Or by tackling existing problems, for new customers (expand mode). Or by tackling new problems for existing customers (extend mode). Or perhaps by tackling whole new problems for new customers (reinvent mode).
An innovation funnel is a tool or process ensuring only the best ideas are executed. In a metaphorical sense, the funnel screens innovative ideas for viability so that only the best products, processes, or business models are launched to the market. An innovation funnel provides a framework for the screening and testing of innovative ideas for viability.
Tim Brown, Executive Chair of IDEO, defined design thinking as “a human-centered approach to innovation that draws from the designer’s toolkit to integrate the needs of people, the possibilities of technology, and the requirements for business success.” Therefore, desirability, feasibility, and viability are balanced to solve critical problems.
Gennaro is the creator of FourWeekMBA, which reached about four million business people, comprising C-level executives, investors, analysts, product managers, and aspiring digital entrepreneurs in 2022 alone | He is also Director of Sales for a high-tech scaleup in the AI Industry | In 2012, Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy.
