The Hockey Stick Curve Growth Fallacy

Maybe it is because I live in oil country, but I’ve been talking to a lot of business owners who are sadly admitting that they are having to lay off staff. For the first year of low oil prices everyone held out hope that prices would rebound, but now many just feel they have to make cuts.

There are a few, however, who have figured out ways to deal with the situation without having to take the slash and burn approach. Let’s talk about one way to reverse bad growth trends.

Have you ever heard about the hockey stick curve? This is what most successful companies experience:

A typical hockey stick growth curve

What it doesn’t show you is the typical next part of that curve:

The full business life cycle looks a little (lot) different

No matter how good your business, eventually it will falter. There are many reasons for that.

  • Sometimes it is just that the market has changed so radically that your product is no longer needed. The classic buggy-whip example. Not a lot of demand for those anymore!
  • Sometimes it is a temporary market disruption, like the oil prices. (Though, as we’ve discovered, it might not be so temporary.)
  • Sometimes it is because as companies grow they get harder and harder to manage well. So customer experience is not as good anymore. Bureaucracy and in-fighting are making change harder. They become less nimble and are often unaware of the new sources of competition out there.

Getting Through The Crisis

When companies find that business has slowed, they typically react by doing one of these things:

  1. Cutting Prices
  2. Laying Off Staff
  3. Shaving Quality

1. Cutting Prices

Dropping prices is a band-aid. It may help with cash flow in the short-run, but it is not going to solve your problems for long. There will always be someone else who’s willing to go even lower. There’s only so low you can go and still stay in business.

And if you keep cutting prices, you’ve also got to cut costs, which will likely affect quality and/or customer service. Either of those will lead to losing more customers.

2. Laying Off Staff

There may be times when you really have no choice, but the way most companies lay off staff makes it even less likely that their company will survive in the long-run.

First, it is going to demoralize the remaining staff, so you won’t get great work from them. They’ll be upset, afraid they’ll be next, and over-worked because they are now trying to do the jobs of those who got axed, on top of their own.

Second, you’ll be losing people with skills, experience and organizational knowledge, which can make it even harder to pull through.

If you must do layoffs, be strategic; don’t just say every department has to layoff a certain percentage of its staff, or cut a certain percentage of its budget. Don’t just fire based on seniority (unless collective agreements force you to). Look for places where you can cut without it making much difference to your customers. I’m sure all your staff work hard, but some of the things they are working on may be less important than others.

3. Shaving Quality

People do notice when you cut quality. They’ll start complaining to you and/or on social media, which will make people less likely to become new customers. Others will just go away without telling you why, and your market share will shrink.

An Alternative Approach

Researchers Ranjay Gulati, Nitin Nohria, and Franz Wohlgezogen found that the companies most likely to grow after a recession were those that cut costs strategically in tough times, by focusing on operational efficiency rather than on staff cuts. This way they avoided upsetting customers with a drop in quality.

At the same time, they invested more in marketing, research and development, and new assets, which were available more cheaply during a recession and would spur future growth. (You can read their study, Roaring Out of Recession, here.)

People Will Pay & Stay For Consistently Great Customer Experiences

I’m talking here about something beyond the ordinary. And doing it consistently, not just on customer appreciation days. Heck, nowadays even just being consistently good is out of the ordinary!

Things like:

  • Having staff who are always helpful and friendly.
  • Having systems that always deliver what customers expect, when they expect it.
  • Having products or services that don’t keep breaking down.

Most companies aren’t doing these things nearly as well as they think they are.

80%25 of companies think their customer service is superior. Only 8%25 of their customers agree!

80% of companies think their customer service is superior. Only 8% of their customers agree!

In a 2012 study, Forrester Research found that 80% of companies believe they deliver “superior” customer service but only 8% of their customers agree!

If your company manages to get into that eight percent, you’ll see your business growing again. Since so few companies provide consistently great customer experience, those who do become customer magnets.

Here’s the catch: creating magnetic customer experiences, and offering them all the time, isn’t easy.

But it can be done, and it’s your best hope of survival when you’ve got to cut costs and/or customers are being approached every day by new competitors and other places to spend their money.

The Benefits of Improving Customer Experience

Customer experience is the ultimate, difficult to copy, way to retain and build market share. It’s not as fast to implement as a price drop, staff layoff or quality cut, but its positive impact on your bottom line will be bigger, and last longer, than just about any other change you can make.

Customer experience is the ultimate, hard to copy, way to keep & build market share.

In fact, a University of Michigan study found that if, in the year 2000, you had invested $100 in the overall US stock market (as represented by the S&P 500 index), by 2012 you’d be down to $93, or a loss of 7 percent. But if you had invested in a fund made up of companies that scored well on the American Customer Satisfaction Index over that same time, your $100 would have turned into $490, or an increase of 390 percent!

I’m not saying it will be easy to improve your customer experience (though we can often find quick wins that will have a big impact without costing a lot), but it is worth the effort. As my trainer says, “If it were easy, everyone would be doing it.” But that’s what makes it the key to growing again.

OK, So How To Do It?

Download the 5 Step Journey to Grow Again. It gives you a road map to follow.

Because there’s good news:

Sometimes you can get another hockey stick happening!

If you do it right, you can ride a second growth spurt

(And yeah, I know I’m not much of an artist. But stick people work well enough!)