When we think about growth we often encounter two fundamentally contrasting models — linear and exponential. The widespread belief leans towards linear growth as the more accessible, manageable trajectory. However, what if I told you that exponential growth, once understood, could be easier to achieve?
There is the story of Sissa Ibn Dahir, who invented the game of chess. When asked by the emperor what he desired as a reward, Sissa, with a seemingly modest demeanor, asked for a grain of rice to be placed on the first square of the chessboard, two on the second, four on the third, and so on, doubling each time. The seemingly humble request turned out to be a masterstroke in understanding the potency of exponential growth; by the 64th square, the total would equate to a mountain of rice bigger than Mount Everest!
This story illustrates exponential growth.
While it may start slow, it rapidly ascends to levels that linear progression cannot achieve in the same timeframe. Linear growth is akin to a diligent ant, climbing one anthill at a time. Exponential growth, on the other hand, is more like a rocket ship, propelling you into orbit and beyond.
A bit more on the Theory.
Research by MIT professor Cesar Hidalgo suggests that the secret lies in the cumulative advantage, also known as the Matthew effect. According to this principle, the rich get richer. Those with initial advantages can leverage them to gain even more, creating a snowball effect that amplifies growth.
In business, companies with substantial initial customer bases or superior product offerings can utilize these advantages to attract even more customers or to diversify their product portfolio, thereby driving exponential growth. Think about how Amazon began as an online bookstore but has grown exponentially to dominate multiple industries, from cloud computing with AWS to entertainment with Amazon Prime, or how when Apple launches a new product it immediately generate billions in new revenue.
The mechanics of the network effect play a crucial role. As Robert Metcalfe, the co-inventor of Ethernet, proposed in Metcalfe’s Law, the value of a network is proportional to the square of the number of connected users. In other words, as a network grows, its value doesn’t just increase linearly; it explodes.
At Facebook, each new user who joins adds not only their value but also increases the value of the network for all existing users. The more people within the network, the more connections, information exchange, and engagement possibilities, leading to exponential growth in the network’s value.
Yes, this theory is fascinating, and it does explain why exponential growth is so powerful. But why do we argue that it is also easier?
For one, exponential growth harnesses the power of compounding. Warren Buffet’s Berkshire Hathaway has averaged an annual growth in book value of 19.0% to its shareholders since 1965 (compared to 9.7% from the S&P 500 during the same period), achieved through an unfaltering focus on long-term investment growth. Buffet’s strategy embodies the spirit of exponential growth — rather than seeking short-term linear gains, he prefers long-term exponential returns, leveraging the power of compound interest.
For a small business, here are a few examples of exponential thinking in-practice.
A linear approach to product development might involve adding new features to an existing product line or incrementally improving what’s already available. However, exponential thinking prompts businesses to consider how they can fundamentally redefine their product. For example, a small bakery might decide not just to sell more pastries (linear thinking), but to start offering baking classes or selling a unique baking mix (exponential thinking), thereby multiplying the avenues for their growth and reach.
Linear thinking might lead a business to focus on gaining new customers one at a time through traditional advertising. Exponential thinking, however, asks us to consider how each new customer can lead to the acquisition of even more customers. Implementing a strong referral program, for example, can turn every new customer into a potential advocate for your brand, thereby exponentially increasing your customer base.
A company with linear thinking might aim to make existing processes slightly more efficient — say, reducing production time by 5%. But exponential thinking pushes for reinventing the process entirely. Instead of merely improving the production line, could you reimagine your manufacturing process? Could you leverage new technologies like automation or AI to not just enhance but transform your production, leading to a substantial leap in efficiency?
Exponential growth compels us to move beyond the familiar cadence of linear scaling. As leaders, it prompts us to shed the comfort of predictable incremental gains and take on the thrilling potential of geometric progression. Think about your organization not as a static entity, growing by adding similar units over time, but as a vibrant, dynamic organism, capable of evolving, adapting, and expanding in unanticipated ways.
This shift in mindset disrupts traditional models of scaling, forcing you to explore novel ways of thinking and working, creating a culture of innovation, and unlocking the power of exponential growth.
As Albert Einstein famously said, “Compound interest is the eighth wonder of the world. He who understands it earns it; he who doesn’t pays it.”