Accelerating Growth

For people fortunate enough to have been predisposed to above average height, they’ve likely been told so most of their lives. At age 12: the doctor says you’re in the 75th percentile, at family barbecues you get all those aphorisms about beans and shoes, and then you make the basketball team. When you’re super tall though, every additional inch of height also becomes more unlikely. At 14, the shortest kid in class becomes more likely to gain 2” in a year, than the guy with underarm hairs who had the early growth spurt.

What I’m thinking about in the context of this anecdote is growth at scale. Most businesses and ideas have an inverse relationship with growth as they get very large. They are “already tall”, in that sense and face steeper odds for outsized growth compared to the specialized upstart. A good example is the traditional buyout/PE shop; back in the 80’s businesses tended to be under-levered. Buyout firms like KKR could bootstrap LBO’s and generate incredible returns, as they had found a new debt-laden frontier. But how does KKR continue to outperform the economy as they make up a greater and greater share of it? Growth seems to be dilutive at that point. The same is true for anyone doing something highly specialized. Your business and skillset is more like an espresso shot, very concentrated and focused. Scaling that focus might bring dilution, like adding the water to make an americano. You’re able to reach more people but the core strength might fade.

What I’m looking for here is exceptions, the rare idea or venture where growth is not dilutive, and the coffee is equally as strong at scale. I think education is a clear example. We all have a set of ideas that we understand and a smaller subset we are able to teach others. The ideas we can teach, whether it's prompt scaffolding or monetary policy can create runaway growth. Learning is extremely multiplicative, you teach one person, who teaches a class, and there’s a possibility for exponential productivity improvements (ex. growth of programming).The only real limitation is the capacity for ideas, not even the number of people. From this perspective, the growth in education was a massive new frontier, like finding a new territory, or expanding the supply chain globally, it revealed a ton of latent potential at scale.

What makes this explosive growth possible is what economists would describe as network effects, where a system becomes more valuable as more people use it. Fundamentally, a system with a non-limited relationship with growth. Think of transit infrastructure, heavier ridership allows for the city to invest more back into trains and staff which makes for a more efficient transit system, incentivizing increased ridership. Similarly, the incremental Facebook user doesn’t crash the servers, but instead per user costs decrease, and the company is able to build up new (maybe non-revenue producing) tools to attract more marginal users.

More businesses transitioning to network driven models should create a more positive sum future. Software will use cheaper data to generate valuable insights at the margins with lower costs. Digital infrastructure will scale with greater adoption. Maybe the next generation of growth will come from this new business model, ideas that grow stronger as they’re shared. Education, healthcare, logistics, etc. transitioning from legacy systems into networks, where every user makes the network stronger and better at predicting edge cases. This growth ceases to be competed away, and systems at scale can break-through the inevitable gravity that’s been associated with building anything.