Keith Hickerson, Papercut Interactive
These days everyone is talking about the next moonshot, that big transformational idea that will put human colonies on Mars, create lithium-ion batteries to power cars for more than a million miles and solve global warming through dispersion of specially engineered sun-blocking particles into the air. These are big, inspiring dreams that capture our business and personal imaginations, help us think more expansively and provide new meaning to our days.
Business leaders always seek that broader sense of purpose. Today we see it in the massive private-sector effort to solve the COVID-19 public health issue. Every transformative leader has her moonshot moment.
The whole concept of a moonshot, of course, came from President John F. Kennedy’s startling objective laid out in May 1961: land an American on the moon with a safe return to earth by the end of the decade. It seemed quite a stretch at the time, but he explained some of the reasons why he issued the challenge during an impassioned speech in 1962, which still captures the American spirit of adventure and invention:
“We choose to go to the moon in this decade … because that goal will serve to organize and measure the best of our energies and skill, because that challenge is one that we are willing to accept, one we are unwilling to postpone, and one we intend to win.”
Entrepreneurs everywhere can relate: running a business involves visions of a new and exciting future and the ability to make a big impact. But what if that big impact can best start in small, incremental ways?
Compounding Success
At the time of President Kennedy’s challenge, much of NASA’s computational and engineering work involved use of the IBM 7090, one of that company’s first computers to use transistors. The first 7090 was installed commercially in December 1959, but it didn’t leap from the minds of computing geniuses fully formed. It was made possible, in part, through the invention of the transistor 12 years earlier by scientists at Bell Labs. And the transistor did not emerge overnight, either; it followed years of incremental developments in vacuum tubes. Vacuum tubes were originally invented in 1904, but the next refinement by Dr. Lee de Forest in 1906 (adding a third element) ultimately made broadcast radio possible. Incrementalism builds on prior success, and the gains compound over time.
Let’s say you are able to improve a key business measure by a slight 1% each month. At the end of three years, that’s 1% times 36 months, or 36% in gains, right? That result would be impressive enough, but it’s actually too low. Each month you make a 1% improvement, you are making that gain from a slightly higher base (the 1% gain you already made the month before). It’s the difference between simple and compound interest: compounding adds interest on interest, too – not just on the principal. That’s why paying off your house costs so much more that it seems it should. In that case, compound interest is working against you (and for the lender).
So what would your gains be at a rate of 1% positive change per month after three years? It’s actually 43%. And the advantage keeps growing as the timeframe gets longer. For those who hate math, there’s a simple shortcut called the “rule of 72.” Take 72 and divide it by the interest rate for any given period and you’ll get a rough approximation of how many periods it will take the base number to double. In our example, we’re using months and a 1% rate of change: 72 divided by 1 = 72 months (or six years) to double. As you can see from our example, by the halfway point we’re already at 1.43, and we will continue to gather steam as compounding helps us over the next three years.
Enough arithmetic. The point is this: small gains that compound on themselves make for big results in your business over the course of time. It can work with not only revenue, pricing and costs of financing, but also with decreases in working capital, trims in expenses, more effective use of leased space, faster customer service response times – essentially anything you can measure.
How to Marry the Lofty and the Lowly Mindsets
Many entrepreneurs want to occupy lofty mental spaces and always live in the world of big ideas, and that orientation is certainly important. But not worrying about the small things can have a long-term detrimental effect on profitability and effectiveness and can actually impede progress toward bigger goals. Those Uber receipts add up. That extra space you don’t need yet has a real cost to it. Not negotiating that most recent deal with enough attention to the details can have meaningful financial and operational implications.
The same principle applies to revenue. Are you charging enough for your services? Are you providing too many added benefits to customers at no additional cost, actually pricing well under what the market will bear and the value you actually provide? Fairness in pricing is critically important, but that means fairness for both your valuable customers and for your business.
The successful business owner merges the two mindsets: keeping watch on the little things can make achieving the big things possible. The history of business is filled with incremental improvements that ultimately powered the next moonshot.
Reaching the Tipping Point
Often companies that make constant, intentional incremental improvements find themselves at a higher level of performance that suddenly opens doors to significant new business, customer relationships and revenue opportunities. The development of artificial intelligence is a great example on an industry-wide level. Advances in machine learning, natural language processing and other AI-related functionality have been building up since the early 1950s. Yet it wasn’t until 1996 that IBM’s Deep Blue beat world chess champion Garry Kasparov, the first feat of its kind. Then almost twenty more years passed before DeepMind’s AlphaGo program was able to defeat a human professional Go player on that challenging game’s full-sized board.
True commercialization with significant demand (the ultimate tipping point for AI) is closer, but after all these years there are still refinements needed before the market really takes off. Siri, Alexa, IBM’s Watson: they all get “smarter” as their interactions increase and they learn more. What will AI bring to health care, to finance and to other industries over the next 20 years? The same trend is happening with autonomous vehicles: during early 2020 it was reported that in California alone self-driving vehicles had logged 2.9 million test miles during the latest annual reporting period. But commercialization? Not quite yet.
The lesson for business owners? Consider two parallel paths forward. Keep your moonshot visions always in sight, but make your business ever more ready for lift off by the positive incremental changes you make each day in every phase of your operation. When your own business tipping point ultimately arrives – and it will – you’ll witness a rapid repayment of all of your incremental efforts along the way.
If you want to talk more about ways you can make meaningful ongoing improvements in your approach to digital marketing, please contact us at [email protected].
