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The One Year, Thirty Minute Challenge :: Week 50 :: Strategic Planning :: Industry Life Cycle

The “Industry Life Cycle” concept has been around for decades. It traces the progression of an industry through four stages – introduction, growth, maturity, and decline – each with unique characteristics and implications for the companies in that industry. I’ve found it attributed to several different business thinkers, so I can’t give you the exact originator, but I can tell you, it’s important and it’s the topic of this week’s One Year, Thirty Minute Challenge.

Industry Life Cycle differs from Product Life Cycle. Product Life Cycle traces the progression of a particular product through (depending on what you’re reading) four or five stages – development (the fifth that is sometimes added), introduction, growth, maturity (or saturation), and decline. Let’s illustrate the difference.

If we were to trace the industry life cycle of home video entertainment in the US, the introduction stage would commence with television and broadcast TV programming in the late 1940s (9% of households had a TV in 1950), the growth stage would progress through the 1950s and probably transition to the maturity stage in the late 1950s (85% of households had a TV in 1960). Household penetration hit almost 99% by 2009. I’m not sure about you, but at this point, I’m not sure I can identify a potential time when home video entertainment will move into the decline stage – perhaps at some point, home video entertainment will decline as people shift the bulk of their viewing to personal, portable screens. During this industry life cycle, we’ve seen dozens of home video related products move through their own individual product life cycle – black and white tube TVs, color tube TVs, cable programming, satellite, laser discs, VCRs, DVD players, flat screen plasma TVs and more have yielded to the current crop of OLED TVs, BluRay players, streaming boxes and streaming services (each of which is in its own place in the product life cycle).

So, what does this have to do with you? It’s critical that each person reading this week’s post determine where their industry is in the industry life cycle. Each stage dictates specific action and specific investment. I spent the formative years of my business life in a declining industry. They turned “whistling while you walk through the graveyard” into an art form, ignoring the signs that would signal upcoming losses in market share, revenue, and profitability. Any corrections were too little and too late. I left the industry 14 years ago, but the final trajectory was already apparent.

Let’s jump into this week’s exercise. If there’s ever been a One Year, Thirty Minute Challenge that requires you to “confront the brutal facts”, this is it. If you do this exercise alone, be honest with yourself. If you do this with other team members, there can’t be any reprisals for those who express opinions that make you or other coworkers uncomfortable. This is the time for, as Ray Dalio would say in Principles, “radical truth and radical transparency”.

Let’s define the four stages of the industry life cycle and the implications for each industry member in that stage.

Introduction – The products ushering in a new industry are often the creation of a new company. So, not only are the products new, the purveyors of the product might have non-existent or immature processes, less-than foolproof manufacturing, and unsophisticated marketing. Investment priorities for those launching in a new industry include research and development, talent acquisition (plugging talent holes not represented in the launch team) and marketing. And not just any marketing, but marketing that resonates with early adopters. Early adopters are those people who most likely share a passion for the field (food, tech, pets, health, etc). Their passion supersedes their need for a “perfect” product. Instead, they see the promise of the new industry and want to be pioneers along with the purveyor of the product. If they believe the product has promise, they become advocates for the industry in general and for the purveyor of the product in particular.

Growth – When it’s clear that early products have “legs”, you’re here. Customers who buy early in this stage take their cue from the early adopters in the previous stage. Once the early adopters “kick the tires” and explain the value of the products to those they influence, sales to the “early majority” begin. These are enthusiastic buyers who want to be first to enjoy the benefits of new, proven products. Investment priorities for industry participants at this stage include efficiently scaling up production (driving unit costs down and volume up), building a robust distribution network, and marketing to broader audiences who’ve shown interest in the industry. Larger “fast followers” from adjacent industries might enter the market via product development or acquisition. As the products constituting the industry become more mainstream and prices go down, the late majority purchase the products, deeming them “safe” and not a fad.

Maturity – At this point, the products constituting the industry have saturated the market. “Everyone” has one. A shakeout occurs. Producers merge, most times, better producers gobbling up lesser ones. Unit prices continue down and products become commodities. Investment priorities include acquisitions, efficiency, and most importantly, while you’re flush with cash and if it hasn’t surfaced already, looking for the successor product that will perpetuate and strengthen the industry (for example, flip phone to smartphone).

Decline – The products constituting the industry reach the end of their useful life. It becomes apparent that another industry will ultimately consume the same dollars (horse drawn carriages vs automobiles). Successor products are now preferred by at least the early adopters and early majority. Sales continue to fall with no chance for recovery. Assets used to produce the product might become worthless (if they are useful only for producing that product). Industry members must choose an exit methodology. Depending on the velocity of the decline, one of those can be “the last man standing”, but clearly that has a limited lifespan. Ideally, participants would have already moved on to successor products and disposed of any specialized assets.

With this backdrop, look critically at your industry. Do your activities and investments mirror the right actions for where you are in the industry life cycle? If the industry is in the growth or maturity stages, are you managing individual product life cycles – creating, promoting, and retiring products – so that you always have the product(s) that delivers optimum value for your customers and target customers?

If you don’t engage in continually reinventing your value creation activities, current and potential competitors will – seeking to capture the money you’re making now. This part of the exercise is so important it got its own One Year, Thirty Minute Challenge earlier this year. You can read about creative destruction here.

The real deliverable from this week’s exercise is a set of actions to take into your next strategic planning workshop. You might intensify your R&D activities, reorder your financial priorities, consider your first venture into mergers or acquisitions, focus more attention on operational efficiencies, or contemplate important shifts in messaging – all driven by where you are in the industry life cycle.