By Donna Mackenzie
Dust off your textbook on differential calculus and you’ll find an inflection point defined something like this: a point on a curve at which the concavity or curvature changes sign from plus (positive curvature) to minus (negative curvature) or from minus to plus.
Negative inflection point examples are plentiful. Your drug patent expires and competitors flood the market with lower-priced, heavily promoted generics. A supplier buys a second-tier competitor and suddenly has more pricing power over its rivals, raising the cost of a component essential to your product. Or worse, a key supplier goes under and you are left scrambling for similar quality, turnaround time and price (you know this dreaded choice from large-scale projects: pick two, getting all three is not an option).
But don’t overlook the positive side of inflection points. The advent of the Internet allows you to have fair-priced talent working remotely around the world and around the clock. Open source software lowers barriers to entry and levels the playing field for thousands of new ventures. You may be in a market, such as healthcare, where changes in regulatory compliance make your once seemingly “over-the-top” security features and multi-device access an instant market leader.
For now, let me just say that a strategic inflection point is a time in the life of a business when its fundamentals are about to change. That change can mean an opportunity to rise to new heights. But it may just as likely signal the beginning of the end.
—Andy Grove, “Only the Paranoid Survive: How to Exploit the Crisis Points That Challenge Every Company”
So, your path is clear, right? Avoid the negative curvature and look for and capitalize on inflection points where step change is positive and moving fast in the right direction. Experienced leaders of early-stage companies know that recognizing an inflection point is not that easy. There may be a gut feel that the market is changing, that raising prices is not a good option or that legacy infrastructure and processes are holding you back.
But, for many leaders of early-stage companies, the time needed to step back and consider where you are strategically, what competitors are up to or how the wave of future trends can be ridden to good fortune, is a luxury they just don’t have.
What these leaders do know first-hand is that the only constant is change. Changes in business models. Changes in customer and supplier relationships. Changes in primary markets. Changes in regulations and compliance standards. Change. Change. Change. Rinse. Repeat.
Andy Grove puts it plainly, “Strategic inflection points can be caused by technological change but they are more than technological change. They can be caused by competitors but they are more than just competition. They are scale changes in the way business is conducted, so that simply adopting new technology or fighting the competition as you used to may be insufficient. They build up force so insidiously that you may have a hard time even putting a finger on what has changed, yet you know that something has.”
Just maybe, Alvy Singer, Woody Allen’s character in the 1977 movie “Annie Hall,” was onto something about early-stage growth companies when he discussed his relationship with Annie: “A relationship [substitute: “early-stage growth company”], I think, is like a shark. It has to constantly move forward or it dies. And I think what we got on our hands is a dead shark.”
Whether you prefer Alvy Singer or Andy Grove, it’s clear that recognizing inflection points can indeed be a life-or-death proposition in the development of your company. Grove drills it home: “Let’s not mince words: A strategic inflection point can be deadly when unattended to. Companies that begin a decline as a result of its changes rarely recover their previous greatness.”
Next: How to recognize a true inflection point (and how to avoid being a dead shark)