What’s the one thing that high-growth companies like Amazon, Microsoft, and Apple have in common? All of these companies started out with just their founders toiling at their idea in their humble garages, only to grow their market-cap past the trillion-dollar range in only a few decades. While each of these unicorn’s business trajectories is unique, their common secret sauce is building products and services that scale.
According to data from the Bureau of Labor Statistics, almost half of all businesses fail during their first year. And there are a lot of reasons why a company can go under, including poor management, insufficient capital, or not a large enough market. One often-overlooked reason for failure though is overexpansion. That’s because scaling is hard. Really hard.
And it’s not just companies that can get into big trouble. Like many governments, research institutes, and charities are painfully aware, a policy, study, or campaign that performs brilliantly in a particular market or demographic can fail miserably when attempting to replicate the same success at scale. The COVID pandemic, for instance, is a living testament to this, evidenced by the widely successful vaccine rollout that saw over 10 billion shots delivered across the world lighting-fast by industry standards, as well as the disappointingly botched contact tracing program done by many countries.
That’s because the road from local to worldwide is paved with many pitfalls. Unless you mind your step, you might get sorely bruised. But what are these pitfalls?
“The Voltage Effect: How to Make Good Ideas Great and Great Ideas Scale”
John A. List
Currency, 288 pages | Buy on Amazon
In his latest book, The Voltage Effect: How to Make Good Ideas Great and Great Ideas Scale, John A. List, the Kenneth C. Griffin Distinguished Service Professor in Economics at the University of Chicago, not only gives a rundown of the leading but often underestimated factors that can make or break the scaling of an idea, but also outlines ways to supercharge it. This also explains the book name, the analogy being that ideas that scale — be they a new government policy meant to improve learning outcomes, a wildlife conservation program to help repopulate an endangered species, or a new restaurant chain — experience “voltage gain” as they scale, meaning it becomes increasingly easier as you expand. Meanwhile, ideas that fail at scaling experience “voltage drops”, with operations becoming increasingly inefficient to the point of reaching an inevitable collapse.
Professor List should know a thing or two about scaling. He served in the White House on the Council of Economic Advisers in the early 2000s under the Bush Administration, where he designed policies that would produce the greatest positive impact on the largest number of American citizens at a fair cost, but also as the chief economist of Uber and, later, at Lyft — two startups that have scaling almost down to an art form. That’s in addition to the over 200 studies List published as a behavioral economist, studying what drives people to make the decisions that they do, from Florida to Costa Rica or from Asia to Africa.
Many think that scalable ideas have a “silver bullet” quality to them that makes them a sure shot, but as Professor List skillfully explains, this thinking is wrong. In the first part of the book, the author outlines and expands on the most important pitfalls that cause voltage drops as an idea is scaled, called the The Five Vital Signs. These are: false positives, misjudging the representativeness of an initial population or situation, spillovers, and prohibitive costs. Along the way, you’ll learn, for instance, how celebrity chef Jamie Oliver did all the right things to expand his restaurant chain to over a dozen countries and why it all came crashing down when he changed his scaling recipe.
The second part tackles the winning concepts that, when applied well, can drive voltage gain like a particle accelerator, including using the right incentives (any behavioral economist’s bread and butter), marginal thinking, scaling culture, and knowing when it’s time to quit on a losing idea. This is the how to make good ideas great part.
All of it is skillfully done thanks to List’s sense for compelling prose and storytelling. While reading this comprehensive book, I found myself turning page after page, as I went through numerous excellent research and case studies, many of which Professor List was personally involved with.
Careful, comprehensive, and fun, The Voltage Effect excels in turning a seemingly boring niche topic into a fascinating book that’s relevant to all, from CEOs and policymakers to naturally curious people with a taste for learning how economics shapes our lives in the real world.
