J Curve investments are strategic decisions to spend money today to receive a benefit tomorrow. J Curve investments create short term financial loss with the intention of recovering the investment in the future, and overriding it with long-term strategic gains.

Every business has J Curves. Here are some examples:

• Adding a new product line
• Accessing a new market
• Making a new staff hire
• Purchasing new equipment
• Opening a new location
• Moving manufacturing overseas
• Investing in R&D
• Acquiring competitors

J Curve investments can also be broken down into “macro” and “micro” J Curves. Acquiring a competitor is typically a macro J Curve investment, while building a new website (for most mid-market companies) is typically a micro J Curve investment.

How important is it to properly undertake and manage J Curves?

I’d argue that the process of identifying, prioritizing, and managing J Curves is the most important determinant of entrepreneurial success.

J Curve Investment Ownership

As you’re considering your own J Curve investments, are you able to name the person who is in charge of each of them? Is a single person responsible for managing and tracking their phases and their progress, and for measuring results and ensuring that they don’t drastically damage the company? And, do you have one person who is responsible for overseeing ALL of the J Curve investments?

In many mid-market companies (companies between $1 MM and $100 MM in revenue), no single person owns this responsibility. In other companies, it may be a group of executives. And most businesses do not have a formal process for evaluating and managing strategic investments.

Mid-market CEOs and their leadership teams intuitively understand when they’re taking on J Curves. But it’s rare for a mid-market company to measure and track either the performance of the J Curve as an independent entity, or its impact on the business as a whole. Should they, you ask?

Absolutely.

It’s important for mid-market CEOs to understand how many J Curves they’re currently undertaking and the status of each, because J Curves cost more than just the short-term drain on cash flow, return, and profit; they absorb substantial “executive head-space” and opportunity cost.

The Risk in J Curves

Whenever I run across a company with no J Curve investments, I know that I’m seeing a company that isn’t going to stay in business for the long haul. You just can’t adapt to constant changes in the marketplace (opportunities and threats) without undertaking J Curves.

And when a company has a J Curve that fails, it’s possible that it can severely damage the business. Sometimes, it can be fatal.

But what about the forward-thinking company that undertakes numerous J Curves, seeking to innovate and stay ahead of the market? This can present just as much risk as having a failed J Curve or having no J Curves; having too many J Curves at once can sink a booming company.

Example – Rolls-Royce Declares Bankruptcy from Too Many J Curves

Rolls-Royce, a company known for engineering and quality, declared bankruptcy in 1971, sixty-five years after its founding. Much of the publicity surrounding the bankruptcy centered on the technical problems of the RB-211 jet engine, which eventually became one of the most popular jet engines in the world over the next 10 years.

To keep the weight of the engine down, Rolls-Royce engineers used lightweight carbon fibers for the fan blades, which shattered when hail or birds were sucked into the seven foot fans. Deadlines were missed and production costs skyrocketed—common occurrences with J Curve investments.

But the engine’s problems didn’t cause the bankruptcy—for years Rolls-Royce had been committing itself to too many costly development projects simultaneously. At the time of the collapse, almost 40% of its employees were working on engines that were not yet profitable. Too many J Curves was one of the major contributing factors of Rolls Royce going bankrupt.

You can see why J Curves are so important. Too many, too few, or failed J Curves can be fatal to a business. By properly managing your J Curves investments, though, you can eliminate much of this risk.

There a 5 rules for managing J Curves, which I’ll outline, along with the steps to manage individual J Curves, in my next post.