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The First Cycle Becomes a Death Cycle

The first growth curve of a company may last from five to 50 years or sometimes even longer. Initial business model and product, marketing, or service concepts may be so unique that they last for generations with minor adjustments only. At least this was the situation 20 or 50 years ago.

At some point in time, the upward trend reverts. The question is not whether this turn occurs, but when it occurs. The downward trend is the second half of the first cycle—that is, the death cycle. It took Oticon about 10 years to lose everything the company had gained in the first 75 years of its lifetime. During this period of decay, both management and investors may well continue to perceive success: Downsizing improves short-term profits. Mergers or acquisitions may boost both top-line and bottom-line growth. Ambitious management goals may lift share prices and hit news headlines.

It is in this period of internal decay with increasingly short-term financially focused management that the company needs the second cycle the most. And it is probably also the time when the company most lacks the capability to create a second cycle.

This is not a new discovery, but it is a discovery that has become much more important. The reason is that change happens faster than before, and the nature of change is different: Companies don’t primarily lose ground just because they are slow to adapt to a new situation. They lose because they don’t realize that the new situation may be fundamentally new, thus requiring a fundamentally different approach instead of just a modified approach. They are so happy with their current mental model that they simply cannot imagine a radically different one.

Fundamentally, new situations occur more often than before because products and services contain much more knowledge than before—including new technologies and radically new materials. Moreover, buying habits move quickly—for example, from a specialized store to a hypermarket or from a physical store to the Internet.

Products as varied as eggs, cars, and banking services were once almost commodities. But now, you may buy eggs from different types of hens that have been fed and kept differently—for example, organically. Cars often come customized in every respect, and banks are no longer just banks.

Firms unable to anticipate or react very quickly to changing needs simply fall back. Hearing and reading the signs of the market has become ever more essential. Sticking to an outdated mental model can be fatal.

The choice is simple, but difficult to realize: You may either continue the first cycle downward or break it by fundamentally questioning its basis—that is, your mental model. If you dare do so, you have started to create the basis for your organization’s second cycle.

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