What It Means for Companies to Act Their Age

Weekly Business Insights from Top Ten Business Magazines

Extractive summaries and key takeaways from the articles curated from TOP TEN BUSINESS MAGAZINES to promote informed business decision-making | Since 2017 | Week 364 |  August 30-September 5, 2024

What It Means for Companies to Act Their Age

By Aswath Damodaran | MIT Sloan Management Review | August 29, 2024

Extractive Summary of the Article | Listen

Every business experiences a life cycle, transitioning from a startup through growth and maturity, and eventually decline. While no leader wants to see their business in decline, the best response to aging as a business is to accept that it’s happening and run the company to reflect its age. There are several factors that induce companies to fight aging, sometimes with success. 

Before a company reaches the point where it must accept its maturity or decline, it may attempt to fight aging. There are three ways leaders can reverse the aging process: renewals, where they try to fix the existing business to make it grow again; revamps, where they extend into new markets and new products; and rebirths, where they change the business, hoping to restart the corporate aging clock.

In a renewal, a company can take actions ranging from the cosmetic to the more tangible. These can include a corporate name change to reflect expanded product offerings, strategic makeovers, in which companies facing a low-growth future present a shift in focus to investors and consumers and they can also include efforts at remarketing and rebranding existing product.  Renewal efforts tend to be successful when change is real rather than merely cosmetic, based on operating changes that add value. Renewal plans can fail when an entire sector, rather than just an individual company, is struggling. Success is more likely if you have plans that are original and build on strengths that are unique to your company. Finally, some renewal efforts can alienate existing customers as new ones are being pursued, creating net negative effects for the company.

Revamps require more change and are more costly than renewals, but they can have bigger positive payoffs if they work. Examples include expanding product or service offerings, expanding to new geographies, or shifting to new business models.  A mistake that many companies make in identifying targets for growth is that they pay too much attention to the size of the market and far too little to what unique strengths they possess that will allow them to capture a tangible share of the targeted market. 

In a rebirth, a company remakes itself as a new business, perhaps very different from its original one. There are companies that have beaten the odds of the business life cycle, fought off decline, and been reborn as successful ventures. 

If you have a management team that recognizes where the company is in the life cycle, this is how the rest of the playbook unfolds: a narrative that fits, consistency in investing policy, consistency in financing and cash return, and investors who buy into that narrative.

3 key takeaways from the article

1. Every business experiences a life cycle, transitioning from a startup through growth and maturity, and eventually decline. While no leader wants to see their business in decline, the best response to aging as a business is to accept that it’s happening and run the company to reflect its age. There are several factors that induce companies to fight aging, sometimes with success. 
2. Before a company reaches the point where it must accept its maturity or decline, it may attempt to fight aging. There are three ways leaders can reverse the aging process: renewals, where they try to fix the existing business to make it grow again; revamps, where they extend into new markets and new products; and rebirths, where they change the business, hoping to restart the corporate aging clock.
3. If you have a management team that recognizes where the company is in the life cycle, this is how the rest of the playbook unfolds: a narrative that fits, consistency in investing policy, consistency in financing and cash return, and investors who buy into that narrative.

Full Article

(Copyright lies with the publisher)

Topics:  Strategy, Business Model, Decision-making, Aging, Longevity, Sustainability