To better understand the decisions your company and leadership are taking, it could be useful to start understanding your company’s context. What is your company’s Industry, and where is it headed? What are the typical patterns of companies in each of these stages? How should your company prepare for its environment? These questions belong to a series of posts that hopes to create some context around businesses and business decisions.

Today we’re going over a very basic concept called Industry Lifecycle. Before we jump into it, I’d like to explain you why I found this useful.

A few months back, I was working for a startup whose leadership team kept making very strange decisions. They would be focusing on expansion rather than enhancing their products, and pushing towards growth rather than focus on product development. This turned out to be one of the reasons I decided to look for new opportunities, which lead me to a little course on Business Management. It was only then that I started understanding some of the decisions my previous company had come across, which made me realise how important it was for people like me to have some basic understanding around businesses, markets and industries.

So, without further ado, let’s get to business! In this post I’ll cover some basic concepts while trying to explain you the typical lifecycle of an Industry, and providing you with some examples.

What is an Industry Lifecycle?

Let’s talk about this in super simple terms. If we think of an Industry as part of an economy that creates materials, goods or services, we’ll start identifying hundreds of very different industries around us. Think about the fabric industry, the food industry, or the health services industry as examples.

How does an Industry Lifecycle work?

When looking at an Industry’s lifecycle, what you actually see is how several companies explore, define, grow and leave a market (market: a place where buyers and sellers (…) meet to facilitate the exchange or transaction of goods and services).

An Industry lifecycle is made out of four different stages: Introduction, Growth, Maturity and Decline. As Industries move through different stages, you’ll also notice that:

• each stage can vary substantially between different industries
  (one industry may spend decades in maturity, as others may just spend a couple of years)

• each stage can develop at very different rates
  (industries can take a few years introducing itself, and spend a few decades growing)

• each industry can also develop at different rates per country/continent/region
  (think about the energy industry, and how it developed so differently between the Asian and African continents)

• there are industries that may never face decline.
  (industries essentially related to human survival, namely the clothing and food industry)

How does an Industry begin?

It’s very hard to determine the exact moment industries begin, probably because it typically happens at the beginning of a product or service’s fit in a market. In those first few months or years, creators create businesses to enable the production and awareness of a new offering.

During those initial times, there isn’t too much consumer awareness around these products, which results also from a lack of participants and information around such goods or services.

These initial companies and businesses are the ones making sure that the market accepts these new offerings, and also the ones to pave the way when it comes to the initial product/service research and development. During those times, revenues coming from these businesses are still quite low.

As an example of an industry in its Introduction phase, think about companies exploring products at very early stages. I would argue that Virtual Assistants and other AI products have been introduced in the last decades (and are no longer at an Introduction stage), that lead to the growth of many companies that we can observe today. These are products that not a lot of people knew or understood at the beginning, still somehow discovering it’s own possibilities.

How does an Industry Grow?

Once a Market fit is identified and Marketshare begins to expand due to need and awareness, you may notice an increase in sales. That increase will also be the one bringing in more companies to the Industry, and start defining some competition. With time, a handful of players appears, taking over noticeable shares of the market.

The beauty at this stage is that companies’ focus should be on their own growth, without paying too much attention to their side players. If you’ve ever heard somethin like “There’s space for everybody”, the reason why this happens is because the market size is also increasing. As more competition appears they bring more awareness to the market, which is a great thing for every player!

During growth, profits aren’t so much a priority, and you’ll see companies investing mostly on research, development and marketing. Some patterns will start to emerge around manufactoring, engineering and design. The focus is on growing, market wise, resource wise, even geographically.

A good example of an Industry at this stage one is the Food Delivery Industry. Uber Eats, Deliveroo, Bolt, etc, that has been in the market for a few years, with an immense growth in the last couple of years, and still a lot of way to pave ahead.

What happens in a Mature Industry?

Mature industries begin once sales reach their peak, and the main way to gain market is not through expansion, but through breaking competition. Here is the moment where you’ll see companies focusing on profits, reducing costs and/or differentiating their product. Within this time, marketshare, cashflow and profitability become the primary goals of the remaining companies, as growth is less important.

As market expansion seems difficult, it is very hard for new players to break barriers and compete within the same landscape.

An excellent example of a Mature market is the Car Industry, where gaining marketshare would be terribly hard for smaller companies. Tesla is a good example of this as a company that managed to enter the Industry at incredibly high costs.

What are the signs of a Declining Industry?

An Industry starts declining once its market size starts decreasing. When that happens it means that the Industry is no longer able to support growth. During this time, companies will start losing marketshare, making decisions on how to redirect their efforts, and adjust their business model, turning to other viable businesses.

Obsolescence lead to declining revenues, which creates a big pressure for all companies: smaller companies will see themselves being dragged out of the Industry, as bigger companies will seek partnerships and start looking into adjacent markets.

A great example of that are Mailing Companies, that have started to feel the end of physical correspondence, redirecting their efforts towards delivery systems.

Hoping this article was useful for you, and that it leads to a better understanding around Industries. If you have any questions or feedback, feel free to reach out to me :)