THE STORY
I read a story recently about how John Breck introduced shampoo to the United States back around 1930. Before then, people used some form of soap to wash their hair. But John Breck showed how to use a pH-balanced detergent which more easily rinsed away from the hair and left the hair and scalp in better condition.
I was shocked to learn how recently shampoo, as we know it
today, was invented. I started thinking about all those generations of people in
the past who have not had the simple benefit of shampoo.
I guess there was a reason why royalty in the past liked to
wear those big crowns on their heads and why the ancient pharaohs of Egypt
shaved their heads. As royalty, they did not want to be seen with dirty hair.
Shampoo is not the only common everyday consumer good that was invented relatively recently. Nearly all common consumer goods which fill our supermarkets are less than 100 years old. In fact, Uneeda Biscuits is considered to be the first broadly advertised branded food product. That happened in 1898. Before that, most food items were sold to grocers unbranded in bulk barrels—put into a plain brown bag for the customer by the local grocer.
Even self-service supermarkets, themselves, have only been around
since abut the 1930s. They had to wait until all these products, like Breck
Shampoo, were invented and branded so that consumers could choose items on
their own.
You could say that a century ago, branded consumer products
were the internet economy of their time. They were inventing whole new
categories of products, like shampoo. They were changing the way people lived
and spent their time and money. A radical transformation was going on in a burgeoning
new industry. New trails were being blazed and new concepts were being invented
(like couponing, which really didn’t begin to take off until all these branded
products came about).
This was the era in which consumer product firms like
Proctor & Gamble really grew into the huge and successful businesses they
are. They were the masters of inventing new categories and inventing ways to
market them to create incredibly large businesses which did not exist before (you
could say that disposable diapers were like the Facebook of their day).
These consumer product companies understood how to use
chemists and other scientists to invent major breakthroughs in performance (not
unlike how companies in the digital economy use engineers). They blazed trails
in new distribution and marketing channels, just as the digital economy did
with marketing on the internet and smartphones.
Yes, less than 100 years ago, the big consumer branded
product companies were Googles, Linkedins and Apples of their time.
But now look at those branded consumables found in
supermarkets. Right next to them is a store brand that is just as good and costs
a lot less. Sales growth is virtually non-existent. The old marketing tricks
don’t move the sales needle much. It’s a very mature business driven mostly by
cost control and price wars.
Consumer branded products are not at all anymore like the
digital economy. And I suspect that at some point in the future, the digital
economy will look a lot like the consumer branded goods industry today—very mature
and without much growth. And it may happen sooner than many people think, just
as I was surprised how soon shampoo went from a new category to extreme maturity.
The principle here is that industries go through life cycles. There’s the introduction stage, followed by rapid growth, maturity and decline. Each stage has its own challenges—the keys to success and the skills required to win vary by stage as well.
Two Strategic
Choices
As a business, you can choose one of two strategies:
- Stick with your industry
(become and industry expert) and ride the industry through its stages.
- Stick with the business stage you are good at operating in and change your portfolio so as to stay in that stage of the life-cycle.
Looking at history, it seems that the second option is the
best. General Electric has been so successful for so long because it keeps
changing its portfolio. It gets out of businesses that are maturing and
reinvests in newer industries that can take advantage of its corporate
strengths. Proctor and Gamble has succeeded by getting out of the mature
industries it helped develop and reinvest in industries (like beauty care and
health care) where it’s traditional skills are still valuable.
And today, we see a lot of “serial entrepreneurs”—people who
are great at the start-up stage of a business. As soon as their business leaves
the start-up stage, they sell it and work on their next start-up. They succeed
because they stick to the stage of business they have mastered.
It’s easy to understand why the second option is preferable.
It’s hard to change one’s nature and instincts. As industries move from one
lifecycle stage to the next, what is required to win is different. You have to
radically change your business model and culture to adapt to the change. Most
companies find it difficult enough to excel when dealing with relative
stability. It becomes exceedingly difficult to excel when moving into a phase
where all the rules for success are changing.
So stick with what you know—and the most important thing you
know (most likely) is how to operate in a particular life stage, not the
particulars about your industry.
If your company stays with your industry, your company’s
life cycle will follow the industry lifecycle. You’ll decline along with the
industry. Is that what you want?
It all happens
faster than you think
The second option is not without its own risks, though. The
trick is knowing when is the right time to make the shift—to exit one industry
and enter another. If you get the timing wrong, you miss out on a lion’s share
of the value creation.
One point to keep in mind is that industries move through
their stages a lot quicker than we usually think. When you are in the middle of
the day to day within an industry, you can sometimes lose sight of the bigger external
factors that about to shake your industry into the next phase. From the inside,
today looks a lot like yesterday, and tomorrow looks like it will be a lot like
today. So we get lulled into thinking things are moving slowly.
But then, one day, everything seems to change. It only
surprises us because we didn’t keep a closer eye on what’s happening outside
the industry—where the disruptions start.
Experts tell us that industry lifecycles are getting ever
shorter; the transitions come ever sooner. While I am a bit surprised about how
fast consumer branded products went from invention to complete maturity, that process
occurred far more slowly than what is happening today.
Back in the early 2000s, I was working with Best Buy and was
trying to convince them to look for a “post retail” strategy. My concern was
that the traditional retail industry was going to get extremely mature
relatively quickly and if they wanted to continue to be a growth company, they
would need to think beyond retail.
Best Buy thought they had a lot of time, so they didn’t act.
And now, only about a decade later, Best Buy finds itself struggling because
its retail foundation is in maturity (or maybe even the beginnings of decline).
This just goes to show how fast this change can sneak up on you if you are not
watching carefully.
So to play the second strategy, one needs to keep one eye focused
on the external environment, in order to know when the times are about to change.
Businesses have two strategic choices:
- Stick with your industry
(become and industry expert) and ride the industry through its stages.
- Stick with the business stage you are good at operating in and change your portfolio so as to stay in that stage of the life-cycle.
In most cases, the second option is more likely to lead to
lasting success. However, to make the second option really successful, you have
to get your timing right on knowing when to shift your portfolio. That requires
keeping an eye outside your industry—where the disruptions which cause your
industry to shift occur.
Google is not content to think its current business foundation will be a growth industry forever. They keep investing in places where they think the next growth may come. You should
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