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Why do some products, companies, and social programs thrive as they grow while others peter out?
There are five causes:
1) False positives, or inaccurately interpreting a piece of evidence or data;
2) Biased representativeness of population, or not making sure your samples reflect the larger population at scale;
3) Non-negotiables that can’t grow or be replicated;
4) Negative spillovers, or unintended outcomes; and
5) Cost traps.
When a seemingly promising idea loses efficacy or profitability as it expands, we call it a “voltage drop.” These failures to scale never happen because of one single reason.
False positives occur when you interpret a piece of evidence or data as proof that something is true, when in fact it isn’t — the inaccurate Covid test results. For scaling, a false positive is an erroneous sign that an idea has voltage when it really doesn’t.
When possible, the solution for rooting out false positives is to have at least three independent replications of the idea that show early promise.
All ventures must understand their potential audience. The first way to do this is by making sure your test samples in the small scale reflect the larger population at scale.
To weed out biases, make sure your early adopters are a random sample. You should also make sure that your survey respondents have appropriate incentives to tell you the truth. A focus group participant who says they would purchase a product if it was introduced could simply be saying, “I would love the option to consider that product in the future,” as opposed to “I will be purchasing the product in the future.”
For an idea or enterprise to hold strong at scale, you need to know whether your “non-negotiables” — the drivers of your success — can be replicated at scale. You can’t afford all the talent you need as you grow, so you hire fewer high-performers and quality suffers at scale — a cruel voltage drop.
As you scale, regulatory constraints, resource constraints, fidelity concerns, and a host of other issues might arise. We must bring these scaling constraints back to the petri dish and make sure the idea works with them in place.
A spillover effect is the unintended impact one event or outcome can have on another event or outcome. A classic example is when a city opens a new factory, and the air pollution it produces impacts the health of nearby residents.
As you scale, the likelihood of spillovers increases dramatically. General equilibrium effects, or natural readjustments of the market, are one chief cause.
When designing your idea early on, you must anticipate negative spillovers and look for opportunities to engineer and benefit from positive ones.
To scale successfully, you need to determine not only how many people like your idea, but also what they’re willing to pay for it and, crucially, how much it will cost to provide.
Happy families are all alike; every unhappy family is unhappy in its own way.
Just like Leo Tolstoy's quote, scalable ideas are all alike; every unscalable idea is unscalable in its own way.
The difference with scaling is there are only five main obstacles you face. And once you anticipate and avoid them, you can scale your idea for the highest voltage possible.
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