Commentary & Analysis
Managing the life cycle of the business
It is amazing to me how many of us get a “deer in headlights” reaction to changes going on around us. The leaders of a business can take a business on the downside of its life cycle and reinvent it and create something new causing it to grow again.
By Wayne Lynn
Published: March 5, 2013
It is amazing to me how many of us get a “deer in headlights” reaction to changes going on around us. We live in a world where changes are occurring all the time. There is a natural ebb and flow, a rhythm to virtually everything. Things come into existence, they grow, and they die. Businesses are no exception to this rule. However, businesses like other social organisms can be different from natural organisms like plants and animals. The leaders of a business can take a business on the downside of its life cycle and reinvent it and create something new causing it to grow again. To be successful at this a leader must know two things:
- Every business will age past the marketplace need that it satisfied for the years while it was young and growing. The forces in the market that created the original need will eventually subside due to technology, economics, regulation, etc. The company will begin to die as sales begin their inevitable decline. You may hang on for a long time but you are still slowly dying.
- Just because a market has started dying does not mean a company must also die. Strong leadership, having defined itself in a non-restrictive way, can re-invent a company and make it young and growing again. The key is in how you see yourself. To put this in plain terms that most readers will understand: there is, for instance, a large difference in seeing oneself as a printer or as a provider of complex communication services. A printer is one subset of the other group while the complex communication provider can be a traditional printer among many other things. This ability to see oneself from a broader perspective is the key to re-inventing a dying business.
According to Peter Drucker making the business perform over the long haul requires managing through 3 distinct phases in the lifecycle of the business. These phases, in my words, not Drucker’s are:
1) Getting your act together - Make the business you have today effective. Make it profitable, give it relevance in the marketplace, and create the skills and disciplines for growth. Stressing the point, this phase is about giving the business the skills and disciplines to perform in its current form. Typically, this is a young company in its early years. However, it can be a company that has been around for a long time that has lost its way. In either case the priority is on becoming effective. This means becoming viable economically, relevant to enough customers to maintain viability, capable of adapting to the changes going on around it, and building the disciplines and values that breed longevity and consistency over time.
2) Maximize profits; then grow without sacrificing margins - Take today’s business to its full potential. Increase its economic viability to levels that compare well even against the best of competitors. Improve the match between market needs and internal capabilities. Grow the business to become the leader in its market. Build the adaptive skills and the disciplines that promote long-term durability for the third phase of the lifecycle. This phase is about growing the business for as long as the market it is serving continues to grow. Again, the goal is market leadership. If you are the market leader, you can continue to grow once the market starts to shrink. This will buy you critical time to plan for successfully navigating through the third phase.
3) Create a different business for a different future - Things change. Shifts in economic conditions, demographics, technology, regulations, and social mores create obsolescence in even the best of today’s businesses. Management, led by its CEO, must respond to this change in a proactive way and start the process all over again making a newly re-invented business effective. This phase is about two things:
- Creating a new business leveraging the strengths of the old one but not being held captive by it. Many of your core capabilities can be useful, even critical, to the newly imagined business of the future. What are we really good at doing? What competencies are transferable into the future? (Competencies are skills your company is especially blessed with. To be transferable into the future, they cannot be solely linked to a declining process or technology. They must be must skills that can migrate to new processes and technologies.) Match those to the emerging technology and market and position yourself to serve the needs of customers in that market. It may likely be the same customers in many cases. Their needs have changed because of their own business reality or technology may have given them a better answer to their problems. You still have the capabilities to satisfy those needs if only you can imagine doing it in a new and different way. And, you must start before you are out of money.
- Winding down the old business and milking it for all the cash you can squeeze from it. Don’t feed the past. Starve away investment capital from the old business. Re-purpose your best human resources to creating the business of the future. You can’t turn back the clock and you shouldn’t try.
The CEO needs to be mindful of the changing performance management tasks required by the 3 stages of the lifecycle. This is usually based more on experience and judgment than the analysis of any set of facts or data. An effective business of today is the foundation from which everything in the future will grow. Determining the balance between maximizing today’s performance and investing in the creation of the future is tough. The question is answered only by thinking about how to get to industry leading performance levels and still have “surplus” performance left over to reinvest. This is the true definition of making today’s business effective, making it realize its potential, and still having the resources available to create the business of the future.
Again, according to Drucker, this level of performance is the only one yielding a true economic profit. This is a high standard. It is one that few leaders in our business truly understand and strive to achieve. One only has to gain an understanding of current distribution of profits in the industry to drive this point home. Fully three fourths of all companies in the industry perform at break-even or worse. This, at least as much as the onslaught of new technology, is why the industry is shrinking.
In closing this article I will leave you with a thought. The overwhelming majority of companies in the printing industry are mired in the “no man’s land” between phases two and three. The reasons are many. As I discussed in The survival of small and mid-sized printing companies in today’s chaotic environment some owners are in denial, some are trapped by circumstance, and many are left with a business that has gone far enough down the back side of the growth curve that there aren’t enough resources and cash left in the business to feed the creation of a new and different business for the future. It is a dilemma with no easy answers. Suffice it to say, as the CEO of a surviving and prospering business going forward, learn the concept of the business lifecycle and manage your company across the 3 phases in a conscious and purposeful way. If you own or lead a business for long enough you’ll see all three phases…maybe more than once!