Apple went from selling desktop computers to iPods to iPhones. Amazon started with books, morphed into the “everything store,” and makes a tremendous amount of money with Amazon Web Services, a totally different type of business. Alphabet, Google’s parent, has another division focused on new businesses to supplement and replace ad revenue: Other Bets.
These are examples of companies that built new S-curves on purpose. And you can and should follow those examples, even if you’re not the same size as they are.
The S-curve describes the life stages of every business and product. When we start businesses, we experience a downward turn of the curve where we’re searching for product-market fit. We’re investing money and time without certainty of a good return. Once you land on a winning business model, you begin to move up and to the right. That’s the beautiful part.
We like to think it will go on forever, but as the German proverb says, “Trees don’t grow to the sky.” There’s a natural limit to the growth of your business. At some point your business model, product, or service will become obsolete, and the S-curve begins the descent.
Once profits start that dip, it’s usually too late. This is why you are wise to commit to innovation and entrepreneurship early on. You need to start building a new S-curve before the old one goes away.
That’s certainly risky, but I teach a process that will help you assess new ventures. I call it POP!—How good are the people? How good is the opportunity? How good is the proof?
People involved in a new venture should be scrappy, knowledgeable about the product or service, and have a high degree of integrity and a solid professional network.
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Customers Increasingly Expect Your Company to Make a DifferenceOpportunity is the heart of the framework. Here the focus is on identifying the customers and why they make purchases. We think about the strategy models that will help us create and capture value. We ask how big this can be at scale. And we pay close attention to the risks involved.
Proof involves having great data and rigorous analysis that predicts success.
The easiest way to build a new S-curve is to “scratch your own itch.” Develop a product or service that you would use yourself. The second way is to pay close attention to your customer’s job to be done. What’s motivating them? Is your new offering easy for them to buy and use? Have you crafted an effective buying prompt?
There are simple and systemic ways to approach the innovation your company needs to succeed. Follow this and you’ll make better bets. You’ll stand a good chance of building a new S-curve that will help your business to continue flourishing.
Gregory D. Bunch is adjunct professor of entrepreneurship at Chicago Booth.
This column is part of the Chicago Booth Insights series, a partnership with Crain’s Chicago Business, in which Booth faculty offer advice for small businesses and entrepreneurs on the basis of their research.
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