After looking at some of the factors that make people perform, this time out, I'm switching to looking at products - specifically, the product lifecycle.

Today's tl;dr

Just like people, products and services have a lifespan - they’re conceived, born, grow and then eventually die.

Why is this important?

Knowing where your product or service is in that pattern can help you understand if when or if it’s successful, and aid in making and understanding decisions about how much effort to devote to it.

The product lifecycle

There are some products which been been around more or less unchanged for decades - to take two random examples, think of cornflakes or car tyres. They might come in a redesigned box or a different style once in a while, but fundamentally they haven't changed that much in decades.

Other products have a much more defined lifecycle - they can be developed, launched, find success and then disappear in a few years.

The point is that nothing stays still. These days, there’s a very, very small market for pagers or fax machines, because they’ve been replaced by better, cheaper alternatives.

Figuring what’s going on with your product or service, and how it might change in the future is hugely important when deciding how to run a business or team.

That’s what this post is all about.

The product lifecycle is a term coined by the American academic Philip Kotler. He’s sometimes called the “father of marketing” - over a sixty-year career he’s written an enormous list of publications, including Marketing Management: Analysis, Planning & Control. For many years this doorstop was the marketing textbook, and was one of the first to look at marketing from the point of view of economics, psychology and organisational theory.

What Kotler came up with is a model for how the sales and profitability of products can change over time - based on his research, he proposed that most products go through distinct phases. Just like we human beings are conceived, born, grows and then eventually die, so products and services change as they go through their lifecycle,

The product lifecycle maps how the market for a product or service develops and changes over time, by measuring two of the most important factors - sales and profit.

Sales is how many units of your product you can sell, or how many users you have. It can be measured in various ways - number of units you sell in a year, how many units a customer users, how long or how much a customer uses your service. Exactly how depends on the context, but as a rule-of-thumb, more sales are better!

Except - because nothing in business is that simple - when more sales aren’t better. What you actually want to do is maximise your profitable sales - where the money that a customer pays you for the product or service is more than the cost of building, supplying or operating the thing or service that they’re paying for.

This seems like it should be a really simple idea, but in practice it can be incredibly difficult to figure out whether a product or service is really profitable because there are a myriad of ways of measuring how the various costs should be allocated. If you’ve got a dedicated team of engineers building Product X, you can offset their salaries against what revenues Product X brings in - but what about the designer who works on several products…?

I’ll cover these kinds of questions in much more detail in a later post, because both they’re fascinating and really important for the long-term survival of a business.

Why is the product lifecycle important?

Knowing where you are in the product lifecycle is important for lots of reasons. At an organisational level, it can help you decide where to deploy your resources most efficiently - is it worth improving the design of our flagship fax machine, or is it time we thought about pivoting into email software?

At a personal level, it can help you decide which team or company to get involved with - developing new products or services and helping to launch them into the market can be hugely-enjoyable, after all. Working on a mature product can also be the right thing for some people - being responsible for maintaining a service used by millions is a big motivation for some.

How the lifecycle fits together

Because most products don’t last forever, the product lifecycle model breaks the cycle into into six distinct stages with very different patterns of sales and profits.

The Development stage

The development phase of the product lifecycle is where the product is conceived and built before (hopefully!) finding the first customers. This covers all the steps from the initial idea, through research and prototyping, to the point where there’s a minimum viable product

At this stage there are little or no sales, and almost certainly no profit - in fact, it’s probably all investment and expenditure. This has a big impact on the financial performance of the firm - either you need to be able to cross-subsidise your R&D work from other more mature products that are profitable; or you need investment funds to pay for things before launch.

In the startup world, this is the familiar bootstrapping and pre-seed funding stages.

Lots of seemingly-promising ideas never get beyond this stage, often because companies run out of funding before they’ve managed to build something that can get to the next stage - introduction.

The Introduction stage

Once you’ve got a minimum viable product, you need to get it out into the market, tell potential customers about it, and ideally start selling it. This can be both hugely expensive and nerve-wracking - marketing and promotion costs a bundle, and comes with no guarantees that your product is going to get any traction.

Every industry is littered with good ideas that sank without trace - depending on which figures you believe, up to 90% of software startups fail outright, so getting things right with product-market fit is crucial.

Your product has to be work well-enough for people to be able to use it, and you have to be able to find and persuade your potential customers to use it. Those two aren’t necessarily aligned - great products might not have enough customers willing to pay for them; and customers might not be able to find the products that fit their needs.

In the introduction stage, costs are still likely to be high - marketing can be expensive. You may also see situations where the cost of operating the infrastructure isn’t covered by the returns that a small number of customers can provide.

This often happens where there’s lots of infrastructure involved - if you have to build a datacenter to support the number of customers you hope to get, a lot of the total cost arrives in the early stages before the prospective customers have arrived.

Profit in the introduction stage isn’t unknown, but it’s pretty unusual. This is the nerves-of-steel phase - you have to keep trying long enough to get your product established, but also know when it’s time to cut your losses and pivot or quit.

The Growth stage

Assuming you have got a degree of product-market fit, the next stage in the products’s lifecycle is the growth phase.

Here, more and more customers start using your product, and the fixed costs involved with building or delivering it start to be covered by the revenues you’re making.

Demand should probably increase, whether it’s because your marketing efforts are being heard by potential customers, or you’re benefitting from word-of-mouth or “flywheel” effects.

Ideally at this stage, you'll see the product move into profit, when the revenues coming in offset the costs going out. That’s not necessary a given, though - if you’ve got high customer acquisition costs these can easily wipe out the profit that each new customer can provide.

Often firms choose to deliberately “buy” market share - pricing products or services below the point where they’re profitable, in the hope that these will either growth will cover costs, or they can raise prices later. It's a gamble that can sometimes pay off, but raises the risk that your product will never get out of the red.

It’s actually common to divide the growth phase into early and late-stage - in the later stages, ideally you’d be in a situation where you start to see profitable growth, and increased growth velocity. That comes with its own dangers, though - it’s very easy to mistake incremental growth for the way things will always be, and be over-optimistic about where your product will get to in the long run.

The Maturity stage

Any product has a finite number of customers who will buy it, and eventually you’ll reach a point where it becomes harder and more expensive to find new customers.

Ideally the customers you’ve already got will stick with you, so that your fixed costs will be covered and your profits will be stable. But new customers will become more elusive, and churn - the difference between new customers coming in and existing customers leaving - can start to increase.

It’s equally likely that by this time there will be other products competing with yours, stealing your existing or potential customers. In that situation, growth will slow and profits might start to decline.

Ideally, you want your products to stick around in the maturity phase for as long as possible so that you can earn back what it cost to develop and launch them. Some parts of the software industry can be like that - think of the multi-year agreements that are typical for big ERP systems, for example, or the mega-profits that Microsoft Office has generated over the years.

Other products are much more fashion-like, with a here today, gone tomorrow pattern. Not many people will remember Clubhouse, which was the next big thing during the Covid pandemic - at the time it was huge, but that popularity couldn’t be sustained.

Some products never reach profitability, even in the mature stages of the lifecycle, because the costs and revenues never align. This can be for intrinsic reasons - it just costs too much to build, or too much to maintain the infrastructure you need to run. Or it can be extrinsic - there are too many players in the market chasing too few customers with similar offerings to enable sustainable margins to develop.

The Shake-out stage

At the shake-out stage, customer numbers decline. This can be for lots of reasons - newer, better products that replace yours, for example. The story of Nokia's mobile phones are often used as a case-study here - they failed to respond quick enough to the rise of touchscreen smartphones, saw their market virtually disappear as a result.

It can also down to fashion trends - your product was hip at one time, but now it’s passe and out-moded. This can be especially difficult to deal with, because fashion-driven products often have outsize markets in the early stages before vanishing without trace almost overnight.

There are also external factors that can influence shake-outs, such as legislation. The sales of combustion engine-powered vehicles is being affected by subsidies that make EVs more attractive, even if the core product - 4 wheels on a metal box - remains fundamentally the same.

It’s not necessarily all doom-and-gloom in the shake-out phase, though - play it right, and it’s possible to earn outsize profits at this stage if you survive long enough to be the dominant player in a smaller market. In our industry there are still people making a very healthy living writing Cobol, because there’s now a very small number of people left who can write Cobol...

Riding the shakeout phase can be a high-risk strategy to try, though, because there’s no guarantee that the market will be big enough for you to survive.

The Decline stage

In the decline stage, both the size and profitability of the market drops away until either it’s uneconomic to continue selling your product or service; or there just isn’t anyone left buying it any more.

This is the sunsetting stage, where you have to put your product out of its misery. Here’s where issues of emotional attachment can be a big problem - it can be very difficult to finally pull the plug on something that you’ve put huge efforts into.

Why is the product lifecycle model useful?

From a company perspective, if you’re aware of where in the lifecycle your products are, it can help you to pinpoint where resources should be deployed for tasks like feature development and support.

At an individual level, the product lifecycle can be a factor to take into account when you're thinking about your next career move. Working on the new and shiny obviously has its own appeal, but if long-term security is important to you, then sometimes it's the products in the maturity and shake-out phases that can supply that.

Some issues with the model

The product lifecycle tries to summarise what can be the results of a crowded and complex market into a few tidy phases. There’s no guarantee that a product or service will fit neatly into one of these, and also that it will go through any or all of them - many products never have an identifiable maturity phase, for example.

There's also the difficulty of how to define each stage in terms of sales and profits - these numbers are always relative to both your own situation and the dynamics of the marketplace. Context is key.

It’s also one-size-fits-all, and different industries (and even products in the same industry) can have very different characteristics. Manufacturing often needs huge investments in plant and machinery to build even small numbers of a product, while digital services have a completely different profile with virtually no big, upfront capital costs.

But a simple physical/digital divide can be misleading. You might not need to build factories to manufacture digital services, but you'll still need infrastructure to run them.

Where to go from here

The product lifecycle is a natural starting point for looking at organisational strategy, aka the question of what to do with limited resources. It can help with decisions around which products or services to develop or compete with, and how to do that. It’s also intrinsically interlinked with financial topics like contribution margins and breakeven analysis, so is a useful gateway into finance questions.