[MUSIC] Okay, so now that we have defined what the product, or the augmented product or service is going to be, and we have attempted our best shot at estimating what the demand, meaning the volume and the market size for this particular project is going to be, the next step is to try to think how you're going to go about managing a product. A product, just like a person, has a life cycle. That life cycle looks like this. There is an introduction stage, there is a growth stage, eventually products, just like people, mature. And we reach, finally, a declining stage in our lives, and so do products or services, okay? So how are these different stages characterized? Well, first of all, typically at the introduction stage, there is typically a very low level of sales, right? For most product, introduction is specifically either new categories or radical new introductions that tend to be a low level of sales. iPods and iPhones would be an exceptions, for example. Typically our costs are very, very high. You can imagine, right, because there is a lot of fixed costs to setting up a factory or a production facility to produce some of these products, and essentially no profits. Or in fact you're in the loss domain, okay? Eventually, if you're lucky, and there is an adoption for your product, the product has to grow. Here we see an increasing level of sales. A reduction of cost as we get scale in production, in purchasing supplies, and so forth and so on. And even scales in distribution. And, if you're lucky, at some point you begin to see some profits. But at some point in their life, products reach their maturity level. Typically, when they reach maturity, we start to see very little growth, or no growth. So the sales becomes constant. Companies attempt to reduce cost and optimize, best they can, their cost structures, in order to maximize the profitability of the product or service. And finally, when they have reached their peak, products begin to decline. Here we notice a reduction, typically in sales. It's hard to optimize the cost even more, especially because many of them are fixed or semi-fixed. So you have, typically, constant costs at this point and necessarily this implies a reduction in profit. So this is the typical life cycle for a product or service. So why is the life cycle important? Well it has very, very clear implications. For one, is that if a company wants to minimize in risk it needs to have products or service that are positioned in different stages of this life cycle. Not all products can be at the same growth stage or the declining stage, because otherwise your company will be exposed to a certain level of risk that might be intolerant for you or for your shareholders. But, in addition, companies as a consequence of this life cycle and to have a portfolio of products. Just like you wouldn't have all of your investments in just one stock, you would also want to have the possibility to diversify. So how do firms go about diversifying. The following framework is going to help you to think about the different possibilities for diversifying your risk, meaning how to grow your product portfolio. [MUSIC]