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Chapter 1. Selecting the Right Industry > Industry Life Cycles - Pg. 11

C HAPTER 1 S ELECTING THE R IGHT I NDUSTRY 11 Industry Life Cycles The stage of an industry in its life cycle is another dimension of indus- try that affects the performance of new firms. Industries, like people and new products, are born, grow, mature, and die out. This life cycle impacts the performance of new firms because new firms tend to per- form better when industries are first born, or are young and growing, than when they are mature or are dying out. 6 There are several rea- sons why. Customer adoption of new products and services is typic- ally normally distributed. As is shown in chapter 6, a few customers are willing to be the initial adopters of new technology products and services, but most people wait until new technology products and services have been around a while before adopting. Similarly, a small number of people tend to be the late adopters of new technology products and services because they are laggards in their view of new products in general. The majority of adopters fall somewhere in the middle, adopting neither early nor late. 7 Because the number of people who adopt early and late is smaller than the number of people who adopt in the middle, markets grow slowly at first, accelerate, and then slow back down. The small num- ber of people adopting initially leads to slow market growth. The increased number of people adopting in the middle period leads to an acceleration in market growth. Then the decreased number of people adopting in later periods leads to a deceleration in market growth. New firms perform better in young markets than in old ones because it is easier for new firms to attract customers when demand growth is highest. Under these conditions, they face the least severe competition from established firms. As an example, think of the cell phone business. In the early growth phase of the market, new firms had a relatively easy time attracting customers. After all, when the demand for cell phones was growing at double digits, there were enough customers for everyone. However, as the industry began to