How Long Will Your Business Last Series: Part 3
by Alex Lamb
Welcome back to the third post on ‘the arc’, the developmental curve that defines the fates of most organizations. My first post covered that pattern that appears to describe the rise and decline of many companies. The second post talks about modeling and understanding what’s going on behind that pattern. This time, I’d like to talk about what business leaders can do to snatch victory from the jaws of defeat and turn their firms into ones that buck the trend. Despite the seemingly inexorable forces that shape how companies evolve, there is evidence that great helmsmanship can make a real difference to outcomes.
Factors that bend the arc
First up, the arc doesn’t even get started unless a company’s guiding team have established product market fit in the first place. The majority of startups never make it off the ground. While most companies follow the same trajectory, that doesn’t mean their peaks are the same size. In fact, it seems highly likely that both the peak size and lifespans of companies follow scale-free distributions, just like many other human social phenomena. (For a remarkable example: the distribution of human conflicts.) This means someone needs to be vigorously exercising business acumen for the arc to even start.
Secondly, the peak of the arc is often determined by the quality of choices that leaders make. Unless a company is well led, it will never fully capitalize on the niche it has identified. Third, picking the right niche in the first place strongly influences both the organizational decay rate and its chance of a subsequent pivot as I explore below. And fourth, a strong culture established by founders boosts longevity. It’s easy to see from the plots in the last post that the decline of an organization is often determined by a simple exponential decay curve. It’s also clear that the tilt of that decline varies quite widely between companies. What this suggests is that culture is usually locked in before a company saturates its niche, and that consequently having a strong culture counts.
The rare companies that buck the trend
You can of course find familiar names out there in the technology and social media space that don’t follow the arc as closely, but for most the differences can be attributed to ownership by larger organizations polluting the development curve, buy-outs, or one-off market events. Then there are companies like Netflix and Twitter that I mentioned last time, that appear to be genuinely beating the arc. For reference, this is what it looks like when the model doesn’t fit.
I’d propose that both these organizations found new ways to make their core offerings relevant to the market. Netflix achieved this by swapping up their business model to embrace streaming and Twitter by making their service increasingly politically relevant. Both have succeeded by making use of three core strategies:
A: Picking a niche where variant offerings are possible.
B: Picking a niche where established customer habits can be relied on to sustain a business undergoing difficult changes.
C: Demonstrating a will to pivot at any scale.
There is also an implication in these examples that encountering threatening headwinds while your company is growing is not necessarily a bad thing in the long run. It can help robustify your culture and stave off the crippling consequences of organizational hubris.
The main lesson here then would appear to be to start thinking urgently about what Product Two will be while you’re still nailing down your advantage for Product One. Why urgently? Because good pivots are as necessarily as rare and hard to come by as good startup ideas. That’s because they constitute new niches, so the constraints on the environment are exactly as harsh as for startups. This is why we don’t see more Netflix curves in the world.
But what else can companies do? What about those of us who work in organizations where there are no clear pivots on the horizon? As usual, Nature has answers. This problem space was explored millions of years before humanity ever started worrying about it.
When food sources are sparse or competition is especially fierce, Nature optimizes reproductive strategies. For instance, kangaroos, who inhabit an environment where food and water supplies are highly intermittent, are capable of incubating three offspring at the same time at different stages of development, including one embryo effectively in a permanent waiting state. This means that if the older offspring die because food cannot be found, the parent animal still has a chance of reproducing. At the other end of the scale, aphids, who live in an environment where food is plentiful but predatory threats are extreme, are capable of producing clone offspring that are already pregnant at the time of birth.
The lesson for companies is clear. If you want to beat the arc, incubate side projects aggressively. Keep their infrastructure independent from your parent organization as much as possible, and don’t expect all such projects to all succeed. Also, don’t fund them indefinitely. Be ready to terminate them at the first signs of non-viability. Then, if one does take off, pivot both staff and budget to that project taking as little organizational baggage with you as you swap focus. Avoid the lure of sliding managers with established power-bases into matching roles in the new entity, no matter how rational that may seem. That will simply turn the new company into the old one, recreating its accumulated habits.
It goes without saying that this is not easy to do. But then nobody ever said that running a business was easy. And this is why productOps never hesitates to ask tough questions when working with clients. Sometimes the answers to lasting growth are precisely the ones that people least want to seriously consider because of the level of pain and change involved. So how long will your business last? As always, that depends on how smart you are about it, and how many tough questions you’re prepared to ask.