The Voltage Effect (2023) will show you help how to thrive in the rapidly changing business landscape through the hidden power behind scaling. Unlock the four secrets that are your key to scalability success.
Table of Contents
Introduction: Upscale to scale up
So you’re an entrepreneur with a new business idea to add to your repertoire. It’s fresh and innovative, and you’re certain your new product or service has the potential to make a big splash in the marketplace. You’re excited about the prospect and already envisioning your idea’s exponential growth.
But here’s a big, important question you must expect to encounter at some point: Can your idea truly scale and become profitable in the long term?
Scalability is the capacity for an idea or business model to expand without compromising its core integrity or functionality. Essentially, it’s about more than just getting bigger or faster. For your business to scale successfully, it should grow sustainably and in a way that adds value to your business every step of the way.
In short, scaling is equal parts art and science.
Want to know the long story of it? In this summary, you’ll discover the common pitfalls that masquerade as signs of growth but can lead you astray, so you’re prepped. You’ll also learn why knowing your audience is critical in assessing your idea’s scalability and why managing the costs of scaling is crucial.
But that’s not all. As you go along, you’ll also uncover the four best-kept secrets that can unlock the scalability of your idea. From exploring scalable incentives to scaling your organization’s culture, each secret offers unique insights and practical applications to transform your thinking about growth.
So, get ready to upscale your approach to success.
The three-part foundation of scalability
As you’re gearing up to take your idea or business to the next level, it’s crucial to know and master the three-step foundation of scalability.
First, beware of the voltage drop, which happens when an idea that works well on a small scale loses its profitability as it expands. An infamous example of this concept is Theranos, the health-tech company led by Elizabeth Holmes, which raised over $700 million from investors. Theranos was valued at $9 billion due to its supposedly revolutionary portable blood-testing technology that didn’t even exist. Holmes resorted to faking results using other companies’ machines to save face. Eventually, her inability to scale this nonexistent technology was exposed and her company’s downfall became one of history’s most notorious tales of business collapse.
Second, you need to know your audience well. Success in scaling depends on knowing what your target audience needs. Kmart’s Blue Light Special sales gimmick exemplifies the perils of misunderstanding the audience. The initiative floundered when Kmart’s corporate team standardized discounted items without considering their regional customers’ preferences.
Third, avoid the cost trap in scaling. Ideally, you should achieve economies of scale using fixed costs better as you scale. The principle means achieving greater efficiency and cost reduction as the size of the operation increases. An idea that becomes more expensive as it grows is a major red flag. So it’s important to see if your budget constraints can hamper replicating your early successes on a larger scale. Don’t be afraid to ask: Will scaling compromise any nonnegotiables?
Here’s another cautionary tale: Arivale. Despite raising $50 million in capital funds, becoming Startup of the Year in 2016, and ticking all the boxes for successful scaling, Arivale fell into the cost trap. Its highly personalized services, backed by complex scientific processes, became more expensive as it expanded, defying the principle of economies of scale.
To recap, successful scaling is a delicate balancing act. Take time to identify the right parts of your business to amplify. By taking underperforming products out of the equation, understanding your audience better, and keeping costs under control along the way, it’s easier to play the scaling game.
With these foundations laid, you can now delve into the four secrets to unlock your idea’s scalability potential.
Scale through well-planned incentives
Since we’ve established the groundwork for scaling, it’s time to reveal the first secret weapon of scaling: incentives. They’re like the little nudges that get everyone moving in the right direction – from your employees to your customers.
Remember the early days of Uber? The no-tipping policy was a big win for passengers. Then, things changed when drivers started asking for tips, likely nudged by Lyft’s in-app tipping feature. So Uber jumped on the tipping bandwagon. More drivers signed up, but it didn’t magically improve the service or make drivers richer. The surprising bit? Only 1 percent of folks consistently tipped. But this whole tipping saga showed how powerful it can be to tweak and adapt incentives to fit your situation.
Let’s dig deeper into the concept of incentives. Most of the time, you do the work and get rewarded. What if you got the reward first and had to work to keep it? That’s the clawback approach. It plays on your instinct to keep what you have.
Wanlida Group, a Chinese electronics manufacturer, used this clawback strategy brilliantly. The company gave its employees an upfront bonus that was theirs to keep as long as they met their weekly production goal. And guess what? This strategy worked like a charm, boosting productivity by over 1 percent. The great thing about the clawback approach? It works across cultures and situations and is super scalable. Even small bonuses can change behavior and productivity when seen as something to lose.
But there are some pitfalls to watch out for. First, people with a lot of risk experiences are more relaxed about potential losses. And second, ethical considerations are huge. You can’t set unrealistic targets and stress your team out; you’ve got to pay out the bonuses when your people hit their targets.
Now that you know the perks of using incentives as a business strategy, let’s head into the next secret: marginal thinking.
Always think on the margins
You know those moments when you stand in the grocery store aisle, debating whether to get that delicious candy bar or go for the healthier apple instead? You’re doing what economists call a cost-benefit analysis. It’s the same thought process when deciding on a gym membership or a new apartment.
As it happens, this thinking is also useful when trying to scale your business.
Thanks to the marginal revolution in the late nineteenth century, we’re now more aware than ever of the value we get from things without going too deep into the weeds. It’s why gold costs more than food and diamonds are more expensive than water. It’s about satisfaction or what economists call “utility.” When you’re in the driver’s seat of a business, you need to keep practicing marginal thinking. Collecting data isn’t enough – you need to dig into it, to see what works, what doesn’t, and where there might be room for improvement. Just like when you decided on that apple because you knew you’d feel better for it later.
Now, here’s a learning curve to marginal thinking that no one likes: mistakes. We all make them. When you think on the margins for the sake of your business, you’ll retrace some sunk costs. These are resources you’ve already spent that you can’t get back. It’s tempting to throw in more time and money to fix them, but that’s rarely a good idea. You need to be able to cut your losses.
That’s only easy sometimes, of course. It can be tough to admit you’ve made a mistake – especially if it affects your reputation or job – but it’s always worth it. Some businesses even switch things up, letting different employees take a fresh look at things every few months. It helps them avoid getting stuck in the past.
Take Lyft’s early days, for example. During an executive meeting, CEO Logan Green and his team examined a spreadsheet of their returns on ad expenditure. A startling pattern emerged: marginal returns from Facebook ads were far lower than Google ones. In hindsight, this wasn’t a data error but a failure to think on the margins. Thankfully, Lyft decided to optimize its marginal gains by reallocating the budget from Facebook to Google. This way, it could strategically save costs, especially when COVID-19 hit the ride-sharing industry.
Just like Green and his team, you need to think on the margins. More often than not, it’s the best way to shake things up and revolutionize your business.
With marginal thinking now under your belt, let’s navigate to the next secret of scaling that will keep you on your toes: quitting when you have to.
Sometimes you need to quit to win
Knowing when to quit is just as important as scaling your best ideas. It may seem contradictory to the common advice of staying resilient. Still, it actually aligns with the principle of opportunity cost – the idea that choosing the best path for you means giving up the possibilities of another.
Successful quitting allows you to invest your time, effort, and resources wisely. In other words, it’s about making a good trade-off.
Consider an alternate universe where the author and economist, John List, is a pro golfer instead. While such a life might be fulfilling on a personal level, List’s skills as an economist have enabled him to make more significant contributions to his field and society. This isn’t to diminish the value of golfers but to emphasize the importance of recognizing and leveraging our unique abilities. In List’s case, his impact as an economist provides the greatest return. Sometimes, it’s crucial to understand when to quit a particular skill and pivot toward another that allows us to make a greater impact in life.
Here’s another example from List’s own experience. One day, his son faced a decision between two baseball bats. He’d saved enough money for the top-of-the-line bat, but his father introduced him to opportunity cost. By choosing the cheaper bat, he’d still have enough money left to buy a new baseball glove. This simple lesson in weighing the trade-offs between options demonstrates the broader concept of opportunity cost in decision-making.
Of course, we’re the first to admit that recognizing when to quit can be challenging. After all, quitting involves acknowledging sunk costs and facing the uncertainty of what comes next. But it’s crucial to remember that these sunk costs – in terms of time, money, or both – are in the past. They shouldn’t factor into your decisions about the future. Instead of obsessing over these points for reflection, focus more on what you can do now and in the future to maximize your resources.
Not convinced about the power of quitting? Check out this experiment List once conducted with a colleague in 2013. Participants were asked to flip a virtual coin to help them make unsure decisions like quitting a job or ending a relationship. The results showed that those who embraced change and decided to quit were happier six months later than those who’d stuck to the status quo.
In short, recognize when it’s time to quit, and fearlessly embrace the opportunity to pivot toward something that could spell a better, more lasting outcome for you. While letting go of an exciting yet unprofitable idea is hard, its benefits far outweigh the emotional and practical costs. So evaluate your path regularly, consider your opportunity costs, and don’t hesitate to change your direction if necessary.
Now that you know what it takes to scale your business, it’s time to learn how to scale your company culture. After all, the people you invest in can make or break your business!
Scaling “people power” is just as important
Scaling your business operations is a surefire path to success, but don’t overlook the significance of scaling your company culture alongside it. Your culture, with its values and behaviors, can make or break your journey to greatness.
So how do you build a scalable company culture? Well, there are three key steps: avoid the perils of meritocracy, prioritize trust and teamwork, and be generous with your apologies when things go awry.
Let’s talk about meritocracy gone wrong. Uber serves as a glaring example of how things can all go downhill. The company boasted about rewarding merit but, in reality, privilege and politics hijacked the process. This created a toxic environment where only the loudest voices at the top were heard, leaving the rest of the employees feeling ignored and undervalued. Pair that with its hyper-aggressive culture and you’ve got a recipe for talent drain and a repellent effect on potential hires.
On the flip side, trust and teamwork can set the stage for a healthier and more productive workplace. Just look at Netflix for inspiration. The streaming TV service provider has cultivated a culture of freedom and responsibility where employees are trusted to do their jobs without being suffocated by micromanagement. This penchant for trust ultimately breeds better performance and creates a positive atmosphere. Additionally, Netflix understands the power of collective achievement. It ties compensation to its overall success, encouraging cooperation and healthy competition. That’s how it could scale without compromising its overall business performance.
But even with the best intentions, there’ll be moments when you stumble. Mistakes happen, but it’s how you handle them that matters – and it all begins with embedding a culture of apologizing from the get-go. When trust is shaken, well-crafted apologies from your company can work wonders. Take Uber’s case, for instance. All it took for the company to handle reports of serious driver mishaps over the years was a genuine apology to its customers. Unfortunately, that didn’t happen, and the company’s reputation eventually took a hit.
So in conclusion, scaling your company culture is paramount. It’s not just about the numbers; it’s about the people working in the environment you create. A healthy and inclusive culture doesn’t happen by accident; it requires intentional and consistent efforts on your part.
Summary
You’ve discovered the secret ingredients to scaling successfully: trusting your instincts, planning and delivering valuable incentives, thinking marginally, letting go of bad ideas and practices, and building a scalable company culture.
So go ahead – take these steps to foolproof your scaling strategy and unleash the full potential of your business.
Review
The book is about how to think differently and challenge the status quo in order to create meaningful change in our lives and in the world. The author, John A. List, is a leading economist who has conducted extensive research on how people interact with digital devices and how they cope with interruptions, multitasking, and information overload. He presents his findings in an engaging and accessible way, using anecdotes, examples, and data to illustrate his points.
The book is divided into four parts. The first part introduces the concept of disruptive thinking, which is the ability to question assumptions, break rules, and embrace uncertainty. The author explains why disruptive thinking is essential for innovation and progress, especially in the digital age, where change is constant and unpredictable. He also discusses the challenges and risks of disruptive thinking, such as resistance, criticism, and failure.
The second part explores the four elements of disruptive thinking: curiosity, courage, collaboration, and conviction. The author describes how each element can help us overcome our fears, biases, and limitations, and unleash our potential for change. He also provides practical tips and exercises to develop each element in ourselves and others.
The third part applies disruptive thinking to various aspects of our lives, such as personal development, relationships, health, spirituality, work, and money. The author shows how disruptive thinking can help us discover our purpose, passion, and gifts, and how we can use them to make a positive impact on the world. He also shares inspiring stories of people who have used disruptive thinking to transform their lives and their fields.
The fourth part addresses the role of disruptive thinking in social change and justice. The author argues that disruptive thinking is not only a personal skill but also a collective responsibility. He challenges us to use our disruptive thinking to confront the injustices and inequalities that plague our society, and to create solutions that are inclusive, equitable, and sustainable.
I found the book to be very inspiring and empowering. The author combines scientific research with personal anecdotes to make the book engaging and relatable. He also provides useful tools and examples to help readers apply the concepts to their own situations. I learned a lot about how my thinking affects my actions and outcomes, and how I can improve it.
I think the book is relevant and timely for anyone who wants to learn more about disruptive thinking and how to use it for good. It helps us understand the benefits and drawbacks of disruptive thinking, and how we can balance it with other modes of thinking. It also reminds us of the importance of finding our voice, vision, and values, and using them to create change in ourselves and in the world.
I would recommend this book to anyone who wants to learn more about disruptive thinking and how to practice it. It is a well-written, well-researched, and well-presented book that will make you think differently about your thinking and your life.