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S-Curve In Business And Why It Matters
The S-Curve of Business illustrates how old ways of doing business mature and then become superseded by newer ways. The S-Curve itself is based on a mathematical concept called the Sigmoidal curve. In the context of business, the curve graphically depicts how an organization grows over a typical life cycle.
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Understanding the S-Curve of Business
A key argument of the curve is that sooner or later, most businesses will reach a period of stagnation – no matter how successful they were in the past.
At the point of stagnation, the business reaches an inflection point.
At this point, it will be forced to innovate to grow and remain competitive.
For executives, understanding where their business lies along the S-Curve is crucial.
If the business has already reached an inflection point – also referred to as a “stall point” – it has less than a 10% chance of fully recovering.
In the next section, we’ll discuss these terms at various points of the life cycle in more detail.
The stages of the S-Curve life cycle
Initially, start-up companies begin at the bottom of the curve with a product or service they are taking to market.
If they are lucky, their offering gains traction – albeit very slowly at first and then gradually quickening as more consumers become aware.
This is the first inflection point, where sales and revenue increase rapidly after an initial period of stagnation or low growth .
While growth will continue for some time, a host of internal or external factors will eventually cause growth to decrease and then taper off.
These factors include:
- Market saturation.
- The rising influence of a competitor.
- Emerging technology that is more profitable.
- A change in leadership resulting in poor management.
Here, the business encounters the second inflection point. At this point, a critical decision must be made.
For the growth curve to start anew and begin trending upward, the business must innovate and ride the wave of technological advancement.
Ultimately, a business at the second inflection point that then tries to innovate is already too late.
Inflection points must be identified before they occur so that businesses have adequate time to develop new products that have a high chance for success.
How do businesses commonly reach stall points?
Most businesses will find it hard to maintain growth during recessions since consumers are spending less.
When state or federal laws are enacted to regulate or ban certain products or services, businesses must have the ability to pivot quickly.
This is particularly prevalent in technology where trends shift quickly.
Examples of companies unknowingly reaching inflection points because of technology include Nokia, Blackberry, Xerox, and Kodak.
Dilution of focus.
Many start-ups have visionary leaders whose sole intent is to serve their customers well.
But when companies become larger, focus and effort can become diluted – particularly as management becomes more convoluted.
For whatever reason, some companies are hindered in their growth because they cannot source the required talent to make it happen.
Examples of S-Curve
Population growth of a country.
As a country’s population grows, the growth rate typically builds momentum slowly.
Yet it accelerates during the middle of the S-curve while leveling off as the population reaches its maximum capacity.
The adoption of a new technology
When a new technology is introduced, it might take time before this technology becomes adopted by the masses.
In the initial stage of the technology adoption curve , its path it’s very steep. Yet when it does take off, it does that very quickly.
Thus, here the slowly then suddenly saying works exceptionally well.
As the adoption rate increases rapidly, thus enabling technology to reach the masses, it eventually reaches a plateau as the technology won’t have any more market penetration.
An example is how smartphones took off and how today, they have become a saturated market, as there are billions of smartphones across the world.
The evolution of a market
Take the example of the iPhone; when it was launched, it didn’t pick up right on.
Indeed, Apple first launched the iPhone in 2007, and only when by 2008, when Apple launched the App Store in combination with the iPhone, the store worked as a jet engine for the iPhone to take off very quickly.
Yet, Apple’s iPhone success was built on the premise that the smartphone market had already been developed by other players like BlackBerry.
Thus, Apple wasn’t a first mover, but when it did enter the market, it took off very quickly.
- The S-Curve of Business allows a company to determine where it is on a typical growth life cycle, and adjust its strategies accordingly.
- The S-Curve of Business life cycle consists of two inflection points. The second is the most critical, as it signifies that a business has reached a growth ceiling.
- Inflection points are caused by a variety of factors relating to the economy, consumer trends, and talent shortages. Whatever the cause, managers must identify them ahead of time and develop strategies to maintain growth .
- S-Curve of Business Overview: The S-Curve of Business illustrates the typical life cycle of a business, showing how old methods become obsolete and new ones emerge. It’s based on the sigmoidal curve and emphasizes the need for innovation to maintain growth .
- Businesses reach a point of stagnation and inflection, forcing them to innovate to remain competitive.
- Knowing where a business is along the S-Curve is crucial, as recovery after an inflection point becomes unlikely.
- The life cycle consists of initial slow growth , rapid growth after the first inflection point, stagnation, and the need for innovation .
- External Factors: Economic downturns, regulatory changes, and shifting trends.
- Internal Factors: Focus dilution, talent shortages, and mismanagement.
- Population Growth: Population growth in a country starts slowly, accelerates, and levels off.
- Technology Adoption: New technology takes time to gain momentum, accelerates, and saturates the market.
- Market Evolution: The example of smartphones, where the iPhone took off rapidly due to market development by other players.
- The S-Curve helps businesses understand their position in the growth life cycle.
- Inflection points are crucial, and innovation is required to overcome stagnation.
- Factors causing inflection points can be internal or external, and managers must anticipate them to ensure sustained growth .
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What Is a Growth Curve?
Understanding a growth curve.
- Growth Curve FAQs
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Growth Curve: Definition, How They're Used, and Example
Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.
A growth curve is a graphical representation that shows the course of a phenomenon over time. An example of a growth curve might be a chart showing a country's population increase over time.
Growth curves are widely used in statistics to determine patterns of growth over time of a quantity—be it linear, exponential, or cubic. Businesses use growth curves to track or predict many factors, including future sales .
- A growth curve shows the direction of some phenomena over time, in the past or into the future, or both.
- Growth curves are typically displayed on a set of axes where the x-axis is time and the y-axis shows an amount of growth.
- Growth curves are used in a variety of applications from population biology and ecology to finance and economics.
- Growth curves allow for the monitoring of change over time and what variables may cause this change. Businesses and investors can adjust strategies depending on the growth curve.
The shape of a growth curve can make a big difference when a business determines whether to launch a new product or enter a new market . Slow growth markets are less likely to be appealing because there is less room for profit. Exponential growth is generally positive but it also could mean that the market could see a lot of competitors.
Growth curves were initially used in the physical sciences such as biology. Today, they're a common component of social sciences as well.
Advancements in digital technologies and business models now require analysts to account for growth patterns unique to the modern economy. For example, the winner-take-all phenomenon is a fairly recent development brought on by companies such as Amazon, Google, and Apple . Researchers are scrambling to make sense of growth curves that are unique to new business models and platforms.
Growth curves are often associated with biology, allowing biologists to study organisms and how these organisms behave in a specific environment and the changes to that environment in a controlled setting. This is used to help with medical treatments.
Shifts in demographics, the nature of work, and artificial intelligence will further strain conventional ways of analyzing growth curves or trends.
Analysis of growth curves plays an essential role in determining the future success of products, markets, and societies, both at the micro and macro levels.
Example of a Growth Curve
In the image below, the growth curve displayed represents the growth of a population in millions over a span of decades. The shape of this growth curve indicates exponential growth. That is, the growth curve starts slowly, remains nearly flat for some time, and then curves sharply upwards, appearing almost vertical.
This curve follows the general formula: V = S * (1 + R) t
The current value, V, of an initial starting point subject to exponential growth, can be determined by multiplying the starting value, S, by the sum of one plus the rate of interest, R, raised to the power of t, or the number of periods that have elapsed.
In finance, exponential growth appears most commonly in the context of compound interest.
The power of compounding is one of the most powerful forces in finance. This concept allows investors to create large sums with little initial capital. Savings accounts that carry a compounding interest rate are common examples.
What Are the 2 Types of Growth Curves?
The two types of growth curves are exponential growth curves and logarithmic growth curves. In an exponential growth curve, the slope grows greater and greater as time moves along. In a logarithmic growth curve, the slope grows sharply, and then over time the slope declines until it becomes flat.
Why Use a Growth Curve?
Growth curves are a helpful visual representation of change over time. Growth curves can be used to understand a variety of changes over time, such as developmental and economic. They allow for the understanding of the effect of policies or treatments.
What Is a Business Growth Model?
A business growth model provides a visual representation for businesses to track various metrics and key drivers, allowing businesses to map out growth and adjust the businesses accordingly to foster these metrics.
Curran, Patrick J., Obeidat, Khawla, and Losardo, Diane. " Twelve Frequently Asked Questions About Growth Curve Modeling: Abstract ." Journal of Cognition and Development , vol. 11, no. 2, 2010.
Sigirli, Deniz and Ercan, Ilker. " Examining Growth with Statistical Shape Analysis and Comparison of Growth Models ." Journal of Modern Applied Statistical Methods , vol. 11, no. 2, November 2012, pp. 1.
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