CyclesNovember 29, 2021
I recently heard the song “Cycles” by Francis Albert Sinatra. It’s a song I hadn’t heard in a long time, and frankly, had forgotten about. It started me thinking about the cyclical nature of things. Frank Sinatra famously recorded his “Cycles” album on his Reprise label in a Los Angeles studio in three hours, during which 25 people showed up, including George Harrison and Pattie Boyd and Tiny Tim. (Boyd inspired Harrison’s songs “I Need You”, “If I Needed Someone”, “Something” and “For You Blue”, and Clapton’s songs “Layla”, “Bell Bottom Blues” and “Wonderful Tonight”.)
Sinatra could be incredibly focused and efficient when recording. Even while hanging out with the Rat Pack. The Cycles album seems a bit melancholy, and the cover image speaks volumes about Sinatra’s headspace in 1968. The photo seems to scream, “here we go again.”
That photo evokes the feeling we’re all having about inflation and business cycles.
Whether he penned them or not, many of Sinatra’s lyrics are about life and life’s vicissitudes.
Consider these lines from Cycles:
-There isn’t much that I have learned
-Through all my foolish years
-Except that life keeps runnin’ in cycles
I doubt the Rat Pack was worried about inflation in the US back then, but if life has taught us anything, it’s that things, patterns, trends, are nonlinear, unpredictable.
Business, like life, has risks, rewards, cycles. The word “inflation” is getting thrown around more than it has been in a long time, and for good reason.
According to the US Bureau of Labor Statistics, the annual inflation rate in the US surged to 6.2% in October of 2021, the highest since November of 1990 and above forecasts of 5.8%.
Upward pressure was broad-based, with energy costs recording the biggest gain (30% vs 24.8% in September), namely gasoline (49.6%). Inflation also increased for shelter (3.5% vs 3.2%); food (5.3% vs 4.6%, the highest since January of 2009), namely food at home (5.4% vs 4.5%); new vehicles (9.8% vs 8.7%); used cars and trucks (26.4% percent vs 24.4%); transportation services (4.5% vs 4.4%); apparel (4.3% vs 3.4%); and medical care services (1.7% vs 0.9%). The monthly rate increased to 0.9% from 0.4% in September, also higher than forecasts of 0.6%, boosted by higher cost of energy, shelter, food, used cars and trucks, and new vehicles.
And then there’s the Federal debt and deficits. There is excellent research on the Peter G. Peterson Foundation site:
Peterson was Secretary of Commerce under President Richard Nixon and is best known for being the co-founder of The Blackstone Group.
Businesses need to be concerned about debt and deficits and inflation, but they have their own life cycles to manage as well.
Business Life Cycles
I contemplate whether there a business life cycle anymore. And, what does that cycle look like? The traditional business life cycle once consisted of Introduction, Growth, Maturity, Decline.
That timeline, or lifeline, was somewhat elongated, as the pace of change in the world and the business itself was relatively predictable. And, if you think about it logically, it wasn’t really a cycle at all.
To consider the stages businesses, or even entire industries go through, look no further than the business of music formats. In 1968 you could get Cycles on a 33 LP album, or an eight track tape. In 2021, you can stream it, download it, buy an album, or share the song with a friend using your IPhone.
The music business has forever changed, and while tastes and the delivery systems for consumers to consume music have evolved because of technology, it doesn’t change the fact that we like music and it creates enjoyment. The features and benefits still accrue, although the delivery mechanism has evolved.
Wonder what happened to the factories which made eight-track cassettes? My guess is those facilities were either 1. closed, or 2. adapted, around 1982, according to this chart (black area). Likewise, vinyl (which has recently made a nostalgic rebound in bookstores, e.g.) flamed out around 1991 according to the chart above (dark blue area); do we remember having cassettes (pink area) around until 2003 or so? Probably because automakers kept putting cassette radios in cars for a long time after they were commercially relevant. (You can almost date stamp cars themselves based on whether they have anti-lock brakes, side impact airbags, or Bluetooth.)
A more recent model has about seven phases in the business life cycle:
Seed, Startup, Growth, Establishment, Expansion, Maturity, Exit
There are problems with this assumption. First, life, and business, is not unidirectional. Business is generally nonlinear.
Businesses often move in more than one direction. Why? Things change. Client relationships change. Ownership structures change. The industry changes. Margins change.
See, life changes.
Is it entropy? A structural breakdown? No, it’s improvement. Isn’t streaming sound better than eight-track music? So none of this change is a cycle, because eight-tracks and cassettes aren’t “cycling back” anytime soon, thankfully.
Life is like the seasons…After winter comes the spring…So I’ll keep this smile awhile…And see what tomorrow brings = “Cycles,” Frank Sinatra
What’s important is, just like sound formats change, that the company, more specifically, the management, changes and adapts.
It might be time for a more fluid paradigm for business life cycles. In fact, perhaps the concept of a cycle is a misnomer. It might be more relevant to describe it as something which came out of an aeronautics laboratory. It’s a trajectory.
I believe business has three phases: Launch, Flight and Landing.
Launch is the early phase of getting both product (or service) and market, traction. That is, you actually have a product or service and a market of customers receptive to enjoying it. One cannot sell luscious oranges from a cart if one does not have luscious oranges to sell. You can sell the concept of an orange, sun-ripened, sweet, cool, refreshing. Your customer can’t actually consume the product attributes or “utility” of the orange if the cart is empty. This is where startups fail. Too much emphasis on imagery and concept and not enough on experience and reality.
Once the rockets are up, who cares where they come down, that’s not my department. = Wernher von Braun
Flight is the natural trajectory of the product (or service). It’s selling, people like it, it has a market, distribution, heck, even reviews! There is no feeling in the world like building a business and creating daily and weekly growth — new customers, new opportunities, pushing revenue higher and higher. But never forget profit! Business owners and managers don’t need the practice, they need results. The old adage applies here, “you can’t lose margin on each unit and make it up in volume;” furthermore the “build it and they will come” approach is loaded with potential pitfalls. It’s best to have a great product that people want and bring that product to as many people as possible.
And all this science I don’t understand; It’s just my job five days a week…A rocket man, a rocket man…and I think it’s gonna be a long, long time = “Rocket Man,” Elton John
Landing is the third stage of business trajectory. There are many kinds of landings for products and services, and of course, it’s best to avoid the crash kind. It’s also best to avoid the 1960’s NASA splashdown kind, with rapid reentry and increased heat and confinement, hoping the parachute opens, and hoping the Coast Guard finds where your capsule lands. The best kind of landing is the soft, gentle kind, where owners and managers have the luxury of capitalizing on their forethought and planning a mutually beneficial exit. It might be an ESOP structure, partnership divestiture, succession plan, or sale to a private group or private equity fund.
One thing is certain, everything changes and business is always dynamic, never static, and always full of risks, challenges and opportunities. On the business’ trajectory path, it’s critical for the ownership and management to know exactly where they are, and to be prepared for the inevitable changes that come, and in particular, managing all the risks to the business, not the least of which is inflation, which itself is cyclical, seasonal.
As the chairman of the board told us, life is like the seasons, after winter comes the spring.