Why You Should Kill Your Cash Cow
The life cycle of technology products is almost embarrassingly predictable. It is best represented by an S-curve, based on decades of empirical evidence as seen in countless industries.
The product life-cycle curve
A new product starts out by seeking product-market fit. Here it eats more cash than it makes.
The product iteratively tries to find stickiness with a particular market segment, seeking the holy grail in tech: product-market fit.
After reaching critical mass, the product begins to take off as the elusive fit is achieved. Sales pick up steam and focus is then shifted onto scaling the product to the biggest possible addressable market.
The development of technologies tends to follow an S-Curve: they improve slowly, then quickly, and then slowly again. And at that last stage, they’re really, really good. Everything has been optimised and worked out and understood, and they’re fast, cheap and reliable. That’s also often the point that a new architecture comes to replace them. — Benedict Evans
The only path then, to build a lasting tech company, lies in successfully making the jump from one S-curve to another.
The jump that Blackberry never made.
As often, what’s often missed contains perhaps the more important truth, holding the key to successfully straddling successive product cycles and building a lasting company: The BCG model states that the cash generated from cash cows must invariably be routed to R&D expenses and question marks in the matrix.
Question marks are products that eat up a lot of cash and show strong potential to grow rapidly, but do not generate much cash in the present. These products though, are the only route to build more stars and in turn cash cows in the future.