We’ve all heard the terms life cycle product and business life cycle before, used to describe the natural, measurable and recognizable stages that a business goes through. As business owners we all want our products and services to last, to ride that pony until her knees buckle. Many times, we don’t know how long that is, so we hope for the best. An increasing number of entrepreneurs today are designing entire business units around trends in the marketplace that have a limited life-span—and they know it in advance! Keep reading to learn to see if you have the talents, resources and stomach to build your own limited life cycle business again and again and again.
How Long Will Your Run Be?
If you’re as old as I am (still not 50 you people), you may remember a 1970s movie starring Farrah Fawcett when she was still and Angel called Logan’s Run. Everybody in the movie had a Life-Clock built into their hand, and when it changed color, it was time to die. Everyone had a limited life cycle that ended somewhere south of 30, and those who didn’t go quietly would be hunted down by the Feds. Those trying to escape were called Runners. The premise was utopian population control or some similar theme. Ultimately, one of the hunter dudes named Logan has his own clock go off prematurely, and he becomes a runner because he wants to live.
Do you know when your business will come to an end? Any ideas? If a sudden event like a changing life-clock came upon you, would you fold like a card table or run, keep on fighting for life. Most of us would like to believe the latter. What would happen if you knew your business life-clock, maybe not exactly but close enough, and planned for its orderly demise and your eventual reincarnation into another business?
Product Development people do this all the time on individual products, usually in the form of enhancements or new versions of the same thing. Every now and then a Steve Jobs comes along and brings us something radically different like the iPhone and it goes on its own run for a while. TV producers know that whether they have a Cheers on their hands, a Happy Days or How I Met Your Mother, eventually the series will jump the shark. They simply write another pilot and launch a new product. Rarely do any of them change their business model.
Cats Keep Landing on Their Feet
Perhaps you’ve known that one business person who seems to always rise to riches, end up suffering something debilitating to the business, and then after a period of reconstruction, ends up back on top. What qualities does that person have to always end up back on his feet like a cat thrown from a 2-story window?
I know two brothers who are in business together, one lives in my neighborhood. In 2006 they were in the mortgage brokerage business and absolutely killing it. I lost track of them, and after the housing market collapse starting in 2008 and continuing today, I checked in again with them in mid-2009. While they still had the mortgage brokerage business on life-support, they were applying very little resources to it. They had opened a new business for loan modification processing. Now regardless of what you may think about the mortgage banking or loan modification industries in the world today, I had to sit back and admire how clever this was. They could literally use the exact same call lists of people who they got mortgages for a few years later, knowing that a percentage of them were in trouble and would now be candidates for modifications. When I asked the guys about that business, they both recognized it had a limited life cycle, and soon enough it too would wind down and they would have to be in something else.
After briefly transitioning the modification business into a loan modification documents request business, literally on autopilot, the boys are now in the lead generation business, selling leads to mortgage brokers at $20-100 each in packages of hundreds or thousands. This business is more profitable than the other two.
Limited Life Cycle Business Strategy
What I had to piece together later was that the brothers were employing a Limited Life Cycle Business (LLCB) strategy. Here are the things they did well to make this happen.
Analyze Data and Trends
The boys have a call center business and generate inbound calls for operators to process each day, every day. This is the heart of the operation. Data is recorded daily on numbers of inbound calls, how lead generation techniques were working, and in large enough numbers to make it statistically significant. Along with their IT and Operations management guys, they would analyze that data every day to see when things were rising or falling in terms of volume. This was their experience.
Then there are the trends in the world to observe, either from research online or from existing contact networks. It didn’t take a rocket scientist to figure out after the housing collapse that mortgage brokering would suffer a huge industry hit. Then after being early in to the loan modification business, rising numbers of competitors and regulations would begin taking their toll on those profit margins. They guys predicted this business would not be attractive after about two years, and this is when they set that on automatic and moved resources into business number 3.
After looking at the data and the expected behavior of consumers, competitors, and governmental policy making, these two business owners acted rapidly to implement then next thing. It doesn’t take long to establish an LLC (limited liability corporation) these days, and the boys had the courage to act with amazing speed to set up the next entity. There were no committees needed to evaluate things over a six month period. Rapid decision-making after hard analysis of the facts is a skill that improves with usage, and these guys had it. They were one of the first to the loan modification game and have unplugged resources from it as all the late-arriving competitors fight for the scraps of what is left.
Capitalize on Existing Infrastructure and Talent
I mentioned that a call center operation was the epicenter of the work done for this story. Along with that, they had an existing network of contacts in the supply side for leads in the real estate industry and of course the customer database on the buy side. Plus they were associating with other business owners in and around that vertical market that were making a killing, all with ideas and programs for the next big thing. All of these assets could easily be re-purposed for the next business venture, from employees to broadcast dialing to outlets for their offerings. Now, with their database so large of contacts who have opted into their marketing lists, they guys have the added bonus of attracting advertisers who want to rent the information; ergo, the lead generation business was born.
Know When to Fold ‘Em
In today’s little tale, the brothers of LLCB knew when to fold, or at least de-emphasize, certain areas of their business. Data analysis and applying some common sense to the trends in the industry, which move very fast, would tell them when the market would dry up, competitors would move in, and in any virgin industry like loan modifications, when government regulation would lower the profit threshold by imposing increased bonding levels, waiting periods, and other things in the name of protecting consumers (which is often VERY necessary). Interestingly enough, the fellas didn’t hold out false hopes that trends would reverse and had the confidence in their own ability to metamorphosize their business model in a cost effective way to switch directions without looking back. They knew they’d land on their feet.
Your Business Life Cycle
Digital Marketers use these methods all the time to hijack product launches and ride them when they are hot. To them, they’re just selling different products even if one day it’s Fat Loss and another day it’s Car Parts. Your business may not be appropriate for such radical changes in direction. God knows that this model isn’t for everyone, including myself.
If you find your sales or profits eroding, ask yourself these questions:
- Do I have meaningful data about customer behavior?
- Can I effectively analyze that data in light of current trends in my industry and the world?
- If I learn new information, am I willing to make a decision on its importance quickly and act by committing resources to a new direction?
- Can I use my existing employees and systems to change directions without major capital investment?
- Can I wind-down a business; de-commit resources to it, without emotional regrets?
If the answer to these 5 questions is YES, you may want to think about the Limited Life Cycle Business model for your small business.