Uneven-Aged Stands and New Revenue

On Saturday I was out in the East Woods cutting down the last few trees for next year’s firewood, enjoying the smell of fresh-cut oak mixed with 2 cycle exhaust. Almost all the trees landed exactly as I had planned, except for a few recalcitrant ones that wouldn’t let go of their neighbors’ branches, but that’s another story.

One thing that struck me, though, was that almost all the trees were of a similar age, somewhere around 50-70 years – a so-called “even-aged stand”. This is great for cutting firewood as they yield nice size logs, but is less than ideal for a dynamic and resilient forest. Similarly some companies have many wonderful products serving up nice portions of revenue, but they have not put a lot of new products into the marketplace of late. Almost all their revenue comes from established, mature products and technologies.

While this is good in terms of being successful with past products, it leaves the company in a vulnerable position. As in a forest, if a destructive storm rolls in or bad bugs (e.g. Asian long-horned beetles) attack the major trees, there is widespread damage and upheaval. The forest cannot recover for a long time. In similar fashion to managing the forest towards uneven-aged stands, companies should have a good portion of their revenue coming from products introduced in the last few years – that is, having some saplings growing amongst the 50-footers.

• The revenue from products released in the last 3 years is a good metric for showing the strength of your company’s development program, its future growth outlooks, and its resistance to competitive threats that emerge.

• A study of over 100 companies in a variety of industries showed that the most successful companies had over 35% of 3-year revenue from new products.

• Similarly Perkin Elmer recently stated in their JP Morgan presentation in January that they had 12% of their revenue from new products in 2009 with this rising to 23% in 2012, clearly strengthening their position.

So now would be a good time for you to do a review of your offerings- do you have a good mix of different stages of maturation – some growing while some others are past prime? Take the time to actually calculate how much of your revenue is from recent products. Like the well-managed, uneven-aged stand, having this diversity of age will put you in good stead when the next superstorm blows or infestation takes hold.