The S-Curve of Business illustrates how old ways of doing business mature and then become superseded by newer ways.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?
- 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.
- 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.
- 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.