Mike Andes breaks down the product life cycle into four stages: introduction, growth, maturity, and decline. Most businesses fail because they don't adapt when they hit maturity and complacency sets in. Tesla is in rapid growth; Apple is mature and highly profitable.
Hey, everyone, Mike Andes here. And today I'm actually recording for the MBA for Entrepreneurs course. I want to walk through one of the lectures here that I'm working on. This is what is called the product life cycle. And I really think it has a lot to do with businesses, not just products, but there's four different stages. Your business can be introduction, growth, maturity, and decline. Now, I have a couple points here, and they're going to be representative of two different companies I want to talk about. But what you can see here, the sales chart, growth here, or the sales model, sales incline. And then we have a line here for the profit. So what happens in introduction phase of the business? We have where the business starts off, the minimum viable product is started, which now allows us to actually sell something and create some sort of elevation here on the sales curve. But at the same time, we're losing money. And that can happen for a few years. I always say at least the third year, fourth year is when you start feeling like you're in the growth phase, when you hit profitability here, because now we're above zero profitability curve. Now you have money to invest back in the business and grow the company, et cetera. And that's why growth really takes off here and therefore it's called the growth phase. During that time, profitability actually really catches up and really it becomes a really interesting business. Again, I usually say this is in year three to five, a lot of people, year one, two, and even sometimes in the three, depending on industry can really get very discouraging. When you're losing money, you're growing fast. You have to put, you know, really pour your heart and soul into the business growth days. Very rewarding. I put here kind of where I think Tesla, someone like Tesla might be massive growth. They just passed profitability the past year or so and their sales are just taking off, right? Every year they're like doubling the amount of cars, the amount of revenues they're making. Massive growth phase company. Then we look over at mature companies in this growth cycle phase and we got profitability being much, much higher, but sales are not growing super fast. Still really high. Still opportunity to grow. And I think this is like an Apple. If you look at their quarterly earning reports, they might grow 5, 10, 15% in a given sector, but they're not growing 100% year over year. Still growing highly, highly profitable. Very, very profitable. This phase, the maturity phase of the business life cycle is the most profitable and the most sales. And this can last like 20, 30 years, but over time, because Entropy, which is basically mean. Things tend to go towards disorder with businesses as it is with the s and P500 looking very different than it did 50 years ago. Sales over time decline, whether it be new management, new technology, complacency, whatever it might be. Profits begin to decline over time and maybe invest into the business, wherever it might be. Ask yourself, though, where are you at in this life cycle of a business? Maybe you're in the growth phase. I'm sorry, in the introduction phase, you're losing money. You're just trying to get the business off the ground. It's very discouraging. There's a lot of growth, but you don't really see any profits. Maybe in the phase here where you're really starting to actually see the fruits of your labor, year three, four, five and six, that's usually what I see here. Massive growth, profits actually becoming available. Like, man, I'm owning a real business. I can go on a vacation. I'm making good money now. Year three, four, five, as usual. I see here this can be anywhere from like year 5 through 10, or it can be like really long. Like, I don't think Apple's going anywhere in the next few years. This could be the phase of 20, 30 years for them, for example. And over time, this usually happens. Businesses fail, people just become complacent. Managers come Into Place, new CEOs, new technology wipes out, competitors come along and they weren't investing into the business, whatever might be. So I hope this is helpful. Ask yourself, where are you at in this curve? Where are you at in terms of cash flow needs based upon your profit? If you're down here, you're going to be watching your, your cash flow because you're literally burning money in order to get this boat to sail, in order to get this thing moving and get momentum moving in a positive direction. Hope that was helpful.
