Facebook is now an old cyclical business.

Facebook and its parent company, Meta Platforms, haven’t lost their mojo. They have reached the point where the advertising cycle dominates the company’s revenue. This is the reason for their recent decline in revenue and the fate of other tech businesses. Companies that were bright in their youth and growing fast look like old rust belt companies that move up and down with the business cycle.

Advertising has always been a cyclical industry, at least as long as data is collected. In the year Looking back to 1919, overall inflation-adjusted advertising grew 5.7% per year outside recessions, but declined 5.6% during recession years.

Although marketing people often say that when a company needs to increase its advertising, it’s in decline, but math doesn’t work that way. But the cold, hard facts of advertising show that the real dollar has declined in recessions.

As a company’s market share grows larger, it is more influenced by general industry trends and the company’s own approach to sales becomes less relevant. In the year That seems to be the case for Amazon’s online store sales, which declined in the second quarter of 2022. This will ride in the auto industry when (and if) Tesla gains market share from General Motors or Toyota. Cyclical rather than continuous market share growth.

Think of a large, highly cyclical industry like steel or cars or paper. Now imagine a small company with better management or technology. It starts out at just a tiny fraction of one percent of total industry sales, but grows by 50% a year. This company appears to be non-cyclical. Its sales growth reflects how well it handles its own growing pains and how it makes discoveries to win more customers. First, the industry cycle dictates when a given year’s growth is 55% or only 45%. Even the smallest number is impressive in a mature industry.

Eventually the law of diminishing returns kicks in, and growth slows from 50% to 30% or 20% per year. But that early growth made it a large part of the overall industry. Now the industry cycle can produce 25% growth in good years or 15% in bad years. It’s still not very cyclical, at least compared to legacy companies. As market share growth slows, however, industry cycles dominate changes in company sales. And that’s where Meta finds himself.

Being cyclical isn’t terrible, although it’s certainly less fun than being stable in decline. And growing fast is good, assuming profits keep pace with sales growth. The challenge for business management is to solve new problems.

Achieving growth in the early days of a technology company is key. It doesn’t matter if the economy grows by two percent or three percent, because a great new product can get more sales regardless of the economy.

On a cyclical level, however, company leadership must think about what business cycles mean. How much do revenues fall in a recession? Should costs be reduced? Probably yes. And how should it be cut? Will it cut staff, reduce marketing, reduce capital spending or eliminate goat yoga classes for employees?

Cycles not only go down, but go up, and often unexpectedly. Business leaders need to think about how they will meet additional demand—when conditions are dire. It may require adding staff, equipment, space, and financing all of this expansion before the bills are paid.

Growth is good, and growth continues long enough until the business cycles. New skills are needed. That’s true of Meta and other great companies with great ideas.