In a recent report on Stryker, a leading medical device manufacturer, its marketing team reported that it was entering the year “on the cusp of new product cycles” and it sales grew 18% by the 4th Q and experienced 11.7% international growth. And the term, life cycle, hit my memory cells that recalled my first year marketing class.
Virtually all companies, including startups, need to concern themselves about these cycles. Businesses, old and new, face increasing competition. Verizon, a 100 year plus old PSTN provider, sees its revenues declining just this last Q in 2016. It struggles to look for new products to prop up its revenues. Dropbox, a new generational digital company, is facing competition from Amazon, Google which build and manage data centers that will undercut Dropbox’s pricing. Unless Dropbox finds new products, it will also suffer revenue declines.
On the other hand, Stryker follows the textbook marketing lesson – -always get new products when the lifecycle or competition reduces the market share and product pricing. That is why Stryker is enjoying double digit growth. And, when I myself work on 3-5 year business plans, I have to think, how can I expand the list of products before initial revenues from my first product get hit? Then one has to consider the speed at which potential competitors can enter the same market. That is what Dropbox confronts today.
What is the industry life cycle? The graph is self explanatory. And one adds the other product must be timed when the product sales dip or, to use a mathematical term, when the second derivative reaches zero.
Then, one includes a new product or a product extension. In a medical device project I am currently drafting, I consider the new product extensions or lines to begin to be introduced within 24 months of the first product. The company must diversify products to reduce the risks to loss in its revenues when competition enters.
Somehow, in Silicon Valley, many entrepreneurs and patent attorneys all believe that their products don’t require immediate extensions or innovations since the patents provide them with a virtual monopoly. In a perfect world that would be true. But today’s world is filled with many patent lawyers, many competitors, and fast moving markets that contribute to a new innovation paranoia – to paraphrase Grove’s oft quoted remark on survival. Even Intel with its treasure troves of patents, knows that competitive concerns are paramount to financial success – even with patents. It builds huge new factories for innovative products to compete. Innovation and new product cycles are key.
So, if the company is a startup or an established company, innovation must be introduced every few years. It needs to be thought early, even when putting together an initial business plan. Investors do not want the one trick pony. And that is what you want to avoid being – a short demonstration of one product line.