We’ve all seen businesses run their course: Blockbuster, Borders, Kodak, Radio Shack, Circuit City, Toys R Us, just to name a few. Each for their own confluence of reasons, but all with the common theme of relying on an aging strategy that ran out of gas.
Your business may never reach that level of prominence but it‘s subject to the same laws of physics. Everything devolves to a state of disorder. It’s the second law of thermodynamics, and so far nothing has been able to escape its effect.
Everything is eventually subject to diminishing returns. Even your best business strategy.
At some point, it too will need a reinvention—a renaissance. Without one your business will move from growth to stagnation. Or worse.
Recognizing the signs of strategic fatigue and taking appropriate action is paramount to business growth and continuity.
That’s because your business, like most things, follows the classic S-Curve.
Riding the S-Curve
In the early stages of the S-Curve, your business is learning a lot about the market and how to configure your business to go after it. Those early learnings begin to pay off and you begin optimizing your business. Growth results, until you near the peak of your business’ S-Curve.
The trick is to recognize when your strategy is nearing the productive peak of its S-curve and create a new S-curve by transforming your business. The timing of when you embark on a transformation is critical. Too early and you risk getting too far ahead of your team. Too late and you risk stagnation and losing the best part of your team.
As an entrepreneur, you’ve already navigated S-curves before, even if you didn’t recognize it.
In fact, there are three overarching operating paradigms for a business.
The first operating paradigm every founder is familiar with: Opportunism. The driving motivation of this paradigm is discovery—looking for the right combination and markets that show them the love. Sell whatever you can to whomever will buy. Basically, find what works and cast a wide net to do so.
Businesses in the Opportunism phase can grow quickly, but they don’t scale. The S-curve of Opportunism is very short and not sustainable. A new growth mode must be adopted or the company will die.
When you’re in Opportunism, you’ll eventually have to pick a lane. And, once you do, you can adopt the next operating paradigm—Optimization—where the new driving motivation is continuous improvement.
This is the paradigm in which businesses most often operate. Decisions are taken by evaluating past results and identifying ways to improve upon them.
This is text-book business decision making. Make what you have better, sell better, live better.
Life is good.
Until the second law of thermodynamics catches up and you start experiencing diminishing returns. You’ve peaked out at the top of our S-curve and entered the land of stagnation.
If you don’t act quickly, within what I referred to in the diagram above as the window of transformation, you risk a serious and possibly irreversible erosion in your business. It’s in this window that you need a rebirth. A renaissance to transform your business. One that breaks down the business structures that you spent years incrementally improving to the point of diminishing returns.
Summit blindness.
There’s an inherent blindness—call it summit blindness—that keeps us from seeing when we’re nearing the peak of our S-Curve.
It’s simply this.
We’re so accustomed to the paradigm of optimization that we have to force ourselves to think differently about our businesses. Even then, it’s hard not to fall back into optimization mode.
If we move from Opportunism to Optimization by picking a lane, think of moving from Optimization to Transformation as picking a faster car. No matter what you do to a sedan, you can’t optimize it into a Formula 1 racer. You got to redesign the vehicle altogether, bolt by bolt.
Optimization is tweaking. Transformation is reinvention.
Transformational growth differs from optimization growth in profound ways. You’ll know it when you see it because the implications are profound. Here are three:
- Significant change in product/market fit. Your offering changes to deliver greater value or to deliver that value to a more lucrative market, or both.
- Significant change in supporting structures. Your policies, processes, and composition of talent and external partners and resources are reconfigured to support the new direction.
- Significant change in team engagement. The renaissance of your business comes with a more engaging vision and mission that propels your team to be better aligned to it.
In future articles, I’ll be discussing what I call the Three Levers of Transformational Growth which will outline the necessary actions to take to find a new S-Curve for your business. (If you want to subscribe to receive those when they are published click here.)
The challenge I want to address in this article is how to detect when you might be at the top of your S-curve, in the window of transformation.
Seeing the summit.
As a strategic leader, you should always be looking to surf the S-curve, paying attention when your current strategy is showing signs of aging.
But how can you tell?
The answers will vary for every business, but to prime your thinking to detect it in your business, consider these common indicators of stagnation.
Revenue engine indicators:
- Underperforming revenue growth compared to your peers
- Increasingly long sales cycles
- Fewer repeat customers
- Erosion in pricing value and increased discounting
- Lower new account win rates
Leadership indicators:
- Owner fatigue and loss of enthusiasm for the business
- Increased organizational anxiety
- Loss of purpose, unclear vision and mission
- Increasing conflict
- Micromanagement leading to a loss of key personnel
- Unintentional or overt sabotage or mutiny
External indicators:
- Economic stress on key customer segments
- Regulatory or other shifts affecting customer behavior
- Disruptive competitive entrants and alternative business models
Remember, as you consider what signs of stagnation may be appropriate to monitor for your business that any of these indicators may be present in your business at any time.
For instance, what business owner hasn’t had moments of fatigue and even disillusionment about their business? Or experienced an economic setback? Or team conflict?
Those are natural, navigable issues, not necessarily signs that your business has peaked the S-curve.
Instead, be sure that you are detecting those that are systemic (affecting the organization broadly) and chronic (not incidental). It’s the broad and persistent indicators that suggest you may be on your way to stagnation or worse.
It’s also your invitation to transform your business and ignite it for a new stage of growth.
Welcome to your new S-curve. A renaissance has begun.
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This article is adapted from a post by the author that appeared on the Strategic CEO Substack.
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