The Life Cycle of a Business

If you don’t find product-market fit, your company dies. But if you do survive long enough to find fit, an interesting thing happens; all companies go through just about the same life cycle every time.

The cycle begins with what I will refer to as the “the ladder”. The ladder involves random shots of popularity for a product, mostly driven by marketing and viral efforts. This is where product-market fit comes into play; if the fit is good, the ladder will only serve to help the firm; this is because customers are more “sticky”, i.e. they will stay with the product longer after the popularity shot. If there is no fit, you’ll see something more akin to a spike of hope; a large splash in popularity followed by 0 use yet again. This survival of the ladder is called the “innovative start”, innovative in that the fit proves the product is a needed change for its current market.

From here, we see the period of massive growth. This is typically spread by word of mouth, or otherwise increased marketing spend thanks to inflowing revenues. This is marked by a surge of new hires, new products, and new media controversies; among other things. It is the perennial “startup” stage, a stage where one might say the fun stuff happens. Unfortunately, the fun stuff doesn’t last forever.

Many companies die during the massive growth stage, particularly in recessions. But those that survive only live to see the period of bureaucratic end. The end of growth is marked by a complex interweaving of divisions, project plans, and budget sheets; such that the only way to control this complexity is by developing a bureaucratic structure. Now, many companies can survive extended periods in the bureaucratic end — companies like Coca Cola and GE are a testament to that — but from here on out, the firm moves too slowly to defend itself against ever changing market conditions and other, younger companies at the innovative start or massive growth stages.

From here, the slow decline starts. Think Macy’s or Sears: companies that once were the stars of their industry have now been taken down by a falling retail market as well as ecommerce starts like Amazon. Such is the eventual fate of all companies, given the aspects of mobility and market adaptation. From here, the companies are slowly picked apart by these forces until their eventual end.

This sounds like a doom and gloom filled depiction, but also understand how long these lifespans are. Macy’s was founded in 1858, 161 years ago. Coca Cola, which is still doing quite fine in the bureaucratic end stage, is 133 years old. And even then, some companies manage to revive themselves like a phoenix; still following the lifecycle process but using their slow decline to instead pivot into an innovative start in a new path. Nintendo is possibly the best example of this; a 130 year old card game company in decline, that decided to take a risk in the modern era and ended up developing a massive share in one of the biggest markets of the current era. The lifecycle is law; but you can always use it to your advantage.

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