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The dreaded top of the “S” curve

The dreaded top of the “S” curve

2014_March This article was written by Ed Hatton, the Start Up Coach for Entrepreneur Magazine (South African edition), as the My Mentor column published in March 2014 and is posted here by their kind permission

 

A threat or a real opportunity?

 

 

Successful start-ups normally begin slowly, then grow rapidly. Growth is not usually a straight line, but can be compared to an elongated “s” curve, with a slow start then strong growth until it levels off. Think about a flat topped mountain – the lower slopes are quite gentle then the sides steepen until the plateau on top, where the business becomes static with little or no growth. Arriving there can be a problem where the company depends on growth to pay the bills, and if nothing changes then like the mountain example the only way from there is down. How can you avoid this trap?

Many S curve books focus on large corporates, getting to the plateau when they reach market saturation, but the slowdown can occur in businesses with less than ten employees, and in as little as two years from start-up. This is often attributed to running out of the friends and family the business relied on as customers in the early stages, or running out of working capital.

Running out of time

In my experience a frequent reason for getting to the top of the S curve is the management style of you, the entrepreneur. You often run everything, and do it very well. You learned this when the company launched and you had to manage everything – from sales to logistics. As the business grew you got better at them than anyone else, so there was no sense in delegating to others. One day you run out of capacity to do more work and the business stalls, limited by your available time.

The answer is to delegate, even if the new manager makes mistakes and is terribly slow. They too will learn to be accurate and fast workers. This is difficult and expensive to do but it keeps you away from that plateau, so it is worthwhile.

Innovation

Companies which jump the S curve are able to start on a new growth path from the plateau where they may have got stuck. A key characteristic is innovation. The company needs to find new ways to do business, new ways to manage itself, new production ideas and possibly new markets or products. This is hard to do: You have the burden of running the business on a day to day basis, and are influenced by all the ingrained ways of doing things that have sustained the business.

One way of getting around those limitations is to imagine you are creating a new start up, but this time with some assets, staff, customers and products. If you had bought this business with an eye on developing it to new heights, what would you do? Which products and customers would you keep and which would you eliminate? Who would be the right people to go forward with you? What would the strategy be?

Timing

The really difficult part of jumping the S curve is that most of the actions should be taken before you get to the plateau. Once the plateau has been reached it is almost impossible to innovate freely. The business has to keep doing everything just to continue to operate with a reasonable profit. Everyone will be working hard. There is no one to delegate authority and responsibility to, and no spare money to hire anyone. This is not a good place to be.

The key is to start during the growth phase, when everything is going well and there is no real need to delegate or innovate. If reinventing now means slowing the growth or not making the same profits this may be the best strategy for the business. Tough to do, but one of the secrets to future growth to unimaginable heights.

If your business is doing really well right now this may be the perfect time to learn about S curves, and plan for the future.

© copyright Entrepreneur Media SA (Pty) Ltd. All rights reserved. No part of this article may be reproduced, stored in a retrieval system or transmitted in any form without prior permission of Entrepreneur Media (Pty) Ltd. Permission is only deemed valid if approval is in writing.

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