A look at ecosystemic adaptive cycles as applied to competitive market environments.

1. Adaptive Cycles
the Industry
E C O S Y S T E M

2. A few weeks ago, I stumbled
across an article that linked the
application of adaptive cycles
from ecology to finance.

3. In addition to its financial
utility, I found that many of the
ecological principles found in
adaptive cycles could also be
applied to competitive market
environments.

4. The following is an excerpt.
e d I t e d e x c e r p t

5. In an adaptive cycle, early growth
is rapid as individuals of many
species S t a r t u p s
arrive in a
newly opened space.

6. They seek to exploit a plethora of
vacant ecological niches.
M a r k e t s e g m e n t s

7. Wealth
Reorganization
X
Exploitation
Conservation
Release
ConnectednessResilience

8. Connections are initially simple
and sparse, but over time many
interconnections and mutual
dependencies develop.

9. The system therefore increases in
both ‘wealth’ and connectedness,
as flows of energy and materials
C a p I t a l become larger and more
complex.

10. Biological O v e r a l l ‘wealth’
confers the potential for novelty
I n n o v a t I o n, allowing the system to
adapt in disparate directions as
circumstances warrant.

11. Connectedness permits increasing
stability, through the development
of negative feedback loops, which
help to regulate conditions
conducive to life. s u s t a I n a b I l I t y

12. Wealth
Reorganization
Exploitation
Conservation
Release
X
ConnectednessResilience

13. As time passes, rapid growth gives
way to conservation.

14. Inter-dependencies become highly
specialized and self-regulation
becomes fine-tuned and
sophisticated.

15. Efficiency is maximized as niches
are fully occupied.

16. Flows of energy c a p I t a l and
nutrients r e s o u r c e s are tightly
controlled by the existing biota
m a r k e t l e a d e r s.

17. This represents the end of the
growth phase.
Wealth
Reorganization
Exploitation
Conservation
Release
X
ConnectednessResilience

18. Relatively few opportunities are
left for newcomers or novel
strategies, hence diversity
stabilizes or declines.

19. The system is ‘rich,’ but becomes
more rigid, and therefore less
resilient in the face of potential
shocks.

20. This can propagate rapidly
through a highly inter-connected
system with smaller margins for
error than it had in its generalist
phase.

21. An increasingly brittle ecosystem
m a r k e t becomes, in C. S.
Holling’s words, “an accident
waiting to happen.”

22. When something does push the
ecosystem m a r k e t outside of the
boundaries it can tolerate, the long
growth phase can morph into a
rapid and chaotic release and
reorganization phase.

23. Nutrients c a p I t a l and energy
r e s o u r c e stores previously tied
up can suddenly be liberated.

24. Wealth
Reorganization
Exploitation
Conservation
Release
X
ConnectednessResilience

25. This can be associated with a
considerable loss of complexity,
but also with much greater
potential for generalist strategies
and for novelty. O p e n I n n o v a t I o n
The Automatic Earth, Jan. 2010

26. Wealth
Reorganization
X
Exploitation
Conservation
Release
ConnectednessResilience

27. I found it uncanny how easily the
narrative of an adaptive cycle
could apply to the emergence,
stability, collapse, and rebirth of an
industry.

28. Let’s take an example:

29. Let’s take an example:
The Music Industry.

30. Reorganization
Conservation
ExploitationRelease
Early players enter an open market.1 9 2 0 s

31. Reorganization
Conservation
ExploitationRelease
Early players enter an open market.1 9 3 0 s

32. Reorganization
Conservation
ExploitationRelease
Early players enter an open market.1 9 4 0 s

33. Reorganization
Conservation
ExploitationRelease
Early players enter an open market.1 9 5 0 s

34. Reorganization
Conservation
ExploitationRelease
Added labels seek to exploit vacant segments. 1 9 7 0 s

35. Reorganization
Conservation
ExploitationRelease
Added labels seek to exploit vacant segments. 1 9 8 0 s

36. Reorganization
Conservation
ExploitationRelease
System wealth allows for disparate adaptation – niche labels. 1 9 9 0 s

37. }

38. }
Flows of energy c a p I t a l and nutrients r e s o u r c e s are tightly
controlled by the existing biota m a r k e t l e a d e r s, who have
created a ‘rich,’ but rigid industry structure.

40. When something does push the ecosystem m a r k e t outside of the
boundaries it can tolerate, the long growth phase can morph into a
rapid and chaotic release and reorganization phase.

41. Reorganization
Conservation
ExploitationRelease
Napster shocks a rigid oligopoly with file sharing software. 1 9 9 9

42. Reorganization
Conservation
ExploitationRelease
Chaotic release phase ensues as digital music takes shape. 2 0 0 0 s

43. Reorganization
Conservation
ExploitationRelease
Chaotic release phase ensues as digital music takes shape. 2 0 0 0 s

44. Reorganization
Conservation
ExploitationRelease
Chaotic release phase ensues as digital music takes shape. 2 0 0 0 s

45. Reorganization
Conservation
ExploitationRelease
Freed resources and innovation shift toward reorganization. 2 0 0 0 s

46. Reorganization
Conservation
ExploitationRelease
Freed resources and innovation shift toward reorganization. 2 0 0 0 s

47. Reorganization
Conservation
ExploitationRelease
Freed resources and innovation shift toward reorganization. 2 0 0 0 s

48. Reorganization
Conservation
ExploitationRelease
New solutions continue to emerge in a liberated landscape. 2 0 1 4

49. It happens in nature, and it
happens in our markets.

50. It’s time we recognize the cycle
and as innovators, develop a model
that tracks industrial progress
through each stage, in an effort to
preemptively generate n o v e l
s t r a t e g I e s in the anticipation of
collapse.

51. O R c o m m e n t s
For questions^, please reach out
@AlxBrands

52. Thank You.