Platt Perspective on Business and Technology

Building for an effective portfolio of marketable offerings 5: meshing product portfolio offered and business model pursued 1

Posted in macroeconomics, startups by Timothy Platt on January 24, 2015

This is the fifth posting to a series on the factors and considerations that would help a business to more effectively determine its best range and selection of offerings that it would bring to its market, focusing here on manufacturers (see Startups and Early Stage Businesses, postings 173 and loosely following for Parts 1-4.)

I have in large part been writing in this series about individual products – individual elements in an overall product portfolio, as they would be offered directly to the end-user market and as they would be offered through supply chain systems to other manufacturers. And in the course of that I have repeatedly made reference to portfolios of products and to the selection and range of products that a business would develop, manufacture, market and sell. My goal for this posting is to more fully discuss product portfolios per se, and as a starting point and to connect this installment more fully into this series as a whole, I begin that by repeating a brief bullet point list from Part 4 that has in fact has its roots in earlier installments too, where I have written of:

• Taking an internal-to-portfolio perspective and thinking about the assortment of offerings provided in terms of how they fit together and create marketable synergies for customer-perceived value offered (see Part 2),
• Taking an external-to-portfolio perspective, and thinking about the assortment of market offerings in terms of overall business effectiveness, and in terms of costs and returns for designing, producing, distributing and bringing offerings to market (see Part 3.)
• And how these can be seen as representing approaches that would expand-out or contract-in the overall portfolio. When these approaches are used coordinately, the result would be a dynamically balanced portfolio that would be both cost-effective for the manufacturer and competitively attractive in its marketplace.

My focus in this posting is on product life cycles, and on how an effective product portfolio has to coordinately account for the product life cycles of all of the products that it includes. Every product has a life cycle, even if many seem to have open-ended ones with stable ongoing market demand supporting stable ongoing production and sales.

1. Bread comes immediately to mind, as a type of product that has remained in demand through essentially all of recorded history.
2. Products such as Coca-Cola come to mind too, that while much more recent of vintage have proven to have stable staying power in their markets since their initial development and public release too.
3. Time-limited product life cycles prove important for fad products, of course – even if some products that begin as fads still seem to hang on long-term as niche market offerings with perhaps small but steady market demand levels. The hula-hoop, first invented in 1958, comes to mind as an example there. This product saw its peak fad market sales decades ago as of this writing, but as of now at least, a small but steady market for hula-hoops still persists. And that situation is unlikely at least as of now, to change any time soon.
4. And at least one other general product category needs mention here in this context too, that is also time-limited for its product life cycle and certainly when you limit that to the period in which these products command a significant market share and offer significant returns on investment – and before they drift into niche market status at best. I refer here to next best-thing innovative products and particularly to the new and novel as these products arise in rapidly changing markets, and where next, next best-things are already in development before this current innovation iteration can first hit its marketplace and its store shelves.

To be more specific here, my primary focus in this posting and in this portion of this series is on product offerings that fit the third and fourth categories as listed above – products with constrained shelf lives as significant sources of potential revenue. In this, longer and even seemingly open-ended life cycle products can be seen as buffers that provide steady revenue support and certainly where a business would offer both constrained and open-ended life cycle product offerings.

• A new product starts out as a cost center, demanding funding and drawing from potential liquidity as it is designed and developed and brought into production.
• Then it begins to bring in revenue as it is marketed (another expense) and initially sold.
• If this product is at least nominally a success, revenue gained through its sale ramps up and to a level that covers all early stage and ongoing costs that it creates. And if it is truly successful, the incoming revenue flow from this product exceeds all of the costs generated from bringing it to market to create an overall positive cash flow profit too.
• Some of this profit, and certainly in a for-profit business, would be taken out as personal gain for the business’ owners, where that would mean stockholders if this is a publically traded company. And some of this incoming revenue, and for a not-for-profit business or for a growth company for-profit, as much as possible of it would be rolled back into the business for further business development including new product development. In this context, I would posit that a nonprofit is much like a pure-play growth oriented for profit business, in which as much incoming revenue as possible is drawn out of ongoing business operations in support of mission, and just enough is retained to maintain the organization itself and with sufficient cash reserves to meet fiscally prudent requirements – and where its mission and its fulfillment are the products offered. (To clarify that point, a nonprofit mission might be the fulfillment of some socially and societally significant goal, and the mission of a pure-play growth for profit is growth itself and usually through product innovation. In both, maximum possible levels of revenue brought in are usually devoted towards fulfilling mission.)

A well balanced product portfolio always has positive cash flow, revenue generating products in production and available for sale, to balance off and cover, at any given time the early stage, negative cash flow stages of developing new and next-generation products. A well balanced product portfolio always has here-and-now profitability and positive cash flow from its current products to cover the expenses of developing its future viability as an ongoing competitive business in its industry and in its marketplaces. I will delve in much more detail into this set of issues in a parallel series: Innovation, Disruptive Innovation and Market Volatility, in its Part 9 installment which will appear in late February, 2015 in my Macroeconomics and Business 2 directory page. So I leave off from there with this point briefly stated at least for now.

And with that set of foundational principles noted, I go back to my points 3 and 4 as listed above, and the very distinct categories of fad and functionally significant innovation – and I come to the issues of connecting this discussion to the specific business model in place. More specifically, I am going to look more fully into the differences between what I refer to as category 3 and category 4 offerings above, in my next series installment and will do so in the context of the types of business models that they each support. Meanwhile, you can find this and related material at Macroeconomics and Business and its Page 2 continuation, and also at Startups and Early Stage Businesses. And also see Business Strategy and Operations and Page 2 and Page 3 of that directory.

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