KoiTip #15 - Understanding S-curves

Farmers know when to plow, when to plant, when to harvest, for the best crop. Is there a seasonal code to guide people developing innovations?

There is. Every innovation follows a lifecycle called an S-curve. Understanding S-curves will help you to take the right actions at the right time.

The four seasons of an S-curve

Every innovation goes through four phases or “seasons”: The cycle begins in winter with the innovation losing money and underperforming the competition while all the kinks are being worked out. Then spring comes and it starts to grow and improve dramatically. Then the product matures, improvements are only incremental, and it enters a hopefully long summertime of being a cash cow. Finally, the product goes into decline as it slips into its autumn years.

Where is your venture in this cycle? Are you spending enough time in winter to prepare for growth? If you are in spring are you focusing on growth above all else to win market share? If you are in summer are you managing costs aggressively to milk the most from your product?

These are important questions about one product - but the real power lies in managing your portfolio of S-curves. Foolish entrepreneurs start looking for a new product or innovation only when their existing offering goes into autumn. Now, with diminishing income from the current product they must fund a long, costly winter developing a new product, but…

…wise entrepreneurs begin the development of their next product during the summer of the existing one, as above. The current product now needs little attention and provides ample returns, providing time and resources for developing the next product. Sophisticated companies like IBM manage portfolios of many staggered, complementary S-curves.

S-curves and two types of innovation

Innovation expert Clayton Christensen says there are two type of innovation:

• sustaining innovation keeps an existing product alive by adding more features - often making it more expensive and more costly. So, an exercise-monitoring wristband with a bigger battery and more buttons
  
  
• disruptive innovation introduces a whole new product that, once it leaves winter, usually drives costs down and makes life simpler. The microwave compared to the oven for example

Sustaining innovation should lengthen the summer for a product - but by making it more costly and complex often shortens its life - and makes it even more vulnerable to a simpler, cheaper disruptive technology.

As someone who works with new ventures across South Africa I’m dismayed at how many entrepreneurs are working on sustaining innovations (bigger, better versions of existing ideas), rather than disruptive innovations. Trying to dislodge a leading existing “summer” product with a sustaining innovation is nearly impossible, and even if you could, autumn is coming! Invest in the new!

I hope knowing S-curves will help you to produce a rich harvest as you work…