Punctuated equilibrium for business success

Finch evolution (from http://rst.gsfc.nasa.gov/Sect20/A12d.html)
Finch evolution (from http://rst.gsfc.nasa.gov/Sect20/A12d.html)

Coming out of the deep recession of 2007-2009 I am struck by how closely business success during recession looks like what ecologists call punctuated equilibrium.  As Wikipedia defines it, punctuated equilibria, “… is a model for discontinuous tempos of change (in) the process of speciation and the deployment of species in geological time.”

This seems to me to look just like strategic inflection points.  That is punctuated equilibrium is a dramatic, discontinuous change in a market or an environment which brings about great opportunity for gain or loss.  Such opportunities can significantly increase business market share, if addressed properly. But if handled wrong, species and/or market share can vanish with surprising speed.

Galapagos Finches

I first heard of punctuated equilibrium from the Pultizer prize-winning book The Beak of the Finch by Jonathan Weiner which documented a study done by two ecologists on Galapagos island finches over the course of a decade or so.  Year after year they went back and mapped out the lives and times of various species of finches on the island.  After a while they came to the conclusion that they were not going to see any real change in the finches during their study, the successful species were holding there own and the unsuccessful species were barely hanging on.  But then something unusual occurred.

As I recall, there was a great drought on the islands which left the more usual soft-skinned nut finch food unavailable.  During this disaster, a segment of finches that hadn’t been doing all that well on the islands but had a more powerful beak was able to rapidly gain population and there was evidence that finch speciation was actually taking place.  It turns out this powerful beak which was a liability in normal times was better able to break open these harder nuts that were relatively more plentiful during drought but normally unavailable.

Recessionary Business  Success

Similar to finches, certain business characteristics that in better times might be consider disadvantageous, can reap significant gains during recession.  Specifically,

  • Diverse product & service portfolio –  multiple products and services that appeal to different customer segments/verticals/size can help by selling to differing business some of which may be suffering  and some who may do ok during a recession.
  • Diverse regional revenue sources – multiple revenue streams coming from first, developing and third world localities around the world can help by selling to regions which can be less impacted by any economic catastrophe.
  • Cash savings – sizable savings accounts can help a company continue to spend on the right activities that will help them emerge from recession much stronger  than competitors forced to cut spending to conserve cash.
  • Marketing discipline – understanding how marketing directly influences revenue can help companies can better identify and invest in those activities that maximize revenue per marketing spend.
  • Development discipline – understanding how to develop products that deliver customer value can help companies better identify and invests in those activities that generate more revenue per R&D $.

Probably other characteristics that were missed, but these will suffice. For example consider cash savings, a large cash horde is probably a poor investment when times are good.  Also, diverse product and regional revenue streams may be considered unfocused and distracting when money is flooding in from main product lines sold in first world regions.  But when times are tough in most areas around the globe or most business verticals, having diverse revenue sources that span the whole globe and/or all business segments can be the difference between life and death.

The two obvious exceptions here are marketing and development discipline.  It’s hard for me to see a potential downside to doing these well.  Both obviously require time, effort and resources to excel in, but the payoffs are present good times and bad.

I am often amazed by the differences in how companies react to adversity.  Recession is just another, more pressing example of this.   Recessions, like industry transformation are facts of life today, failing to plan for them is a critical leadership defect that can threaten business long-term survival.

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