Exponential projects progress along a different growth curve than incremental ones. Learn strategies to shift your organization’s thinking around vision, expectations, metrics and resources.
This chart compares typical curves for incremental vs. exponential innovation, with results along the left axis and time across the bottom.
The exponential curve starts more slowly than the incremental one but steepens over time. Gaps between the curves can stall or derail the path of your exponential journey.
As you consider the two paths of innovation, keep in mind that you need both incremental and exponential thinking.
The goal is to become “ambidextrous” and good at both so you can use the mindset that’s appropriate to the circumstances.
How do you help people see what’s possible while being comfortable with uncertainty?
How do you set expectations for how an exponential initiative is distinct from an incremental one?
What can you measure to indicate you are building a strong network effect?
How can you put resources in place now to scale quickly and affordably later?
When you are on an exponential path, you don’t have a line of sight to the goal. It’s like sending a rocket into space. You know it’s going up, but you can’t see where it is ultimately going to go.
This poses a challenge to the incremental mindset which wants to know exactly where you are going, how you will get there, how long it will take, and how much it will cost.
To overcome the vision gap, you need to help people get comfortable with moving in a compelling direction towards an undefined destination.
A strong Shared Purpose and Strategic Narrative help create a compelling direction. You can also find a “horseless carriage” to help people make a mindshift that makes the new direction clearer.
Use this worksheet to find ways to make the direction compelling, even if the destination isn’t known yet. Think about how you currently communicate the vision for a new initiative. What kinds of messages help people move toward a known destination?
For example, Tesla relied on its strong Shared Purpose of “accelerating the world’s transition to sustainable energy” to help sustain enthusiasm while it worked to deliver on its promises. And early automobile-makers created the concept of a ‘horseless carriage’ to help bridge old and new thinking long before the age of Tesla automobiles.
INCREMENTAL
How do you currently communicate the vision for new initiatives?
EXPONENTIAL
How can you make your direction compelling, even if the destination isn’t known yet?
On an incremental journey, if you are a third of the way towards your goal, you expect to also have achieved a third of your results.
On an exponential journey, results happen slowly at first as the network effect builds. This makes people nervous, because they aren’t sure if the curve will ever bend, and they are skeptical that growth and progress are imminent.
Think back to the blocks vs. the ping-pong balls. When you’re halfway through the time it takes to build a block tower, you have half of the tower built. At the halfway point of building a ping pong ball box, you’re still loading mouse traps. It doesn’t look like you’re making progress, because you’re still setting up the conditions for the network effect.
To overcome the expectations gap, you need to make sure people understand the difference between the incremental and exponential innovation curves.
Identifying and focusing attention on the right metrics to track network effects is essential (see also “The metrics gap”).
Use this worksheet to find ways to avoid frustration on your exponential journey when progress is slow at first.
How do you currently set expectations on progress for new projects? What messages and metrics help others accurately assess how the project is going?
Here’s how Jeff Bezos helped close the expectations gap for early stakeholders:
“Because of our emphasis on the long term, we may make decisions and weigh tradeoffs differently than some companies.” — Jeff Bezos, Amazon, 1997
INCREMENTAL
How do you currently set expectations on progress for new projects?
EXPONENTIAL
How could you avoid frustration with an exponential journey, where progress is slow at first?
-Jeffrey P. Bezos: 1997 Letter to Shareholders
One reason for the expectations gap is the lack of metrics that provide guidance and accountability along the exponential journey.
Incremental metrics track progress against predefined goals. By contrast, exponential metrics measure progress towards the creation of network effects, which ultimately lead to exponential results.
You can design exponential metrics that tell you how you are doing towards creating the conditions that will generate exponential results. This also serves to close gaps in expectations about your exponential initiatives.
One way to identify exponential metrics is to think about what the user wants and measure how well you are able to help them achieve that goal. Also, consider what user behaviors are most essential for the ultimate success of the system.
Rather than focusing on traditional incremental e-commerce metrics like sales, basket size and markup, Amazon focused on exponential metrics like numbers of reviews, affiliates and members, which demonstrated success in creating conditions for the network effect Amazon was aiming for.
By watching these exponential metrics, Amazon was able to test their progress in creating the right environment for exponential growth—and demonstrate that progress to stakeholders.
In one example, Amazon focused on metrics that helped predict a network effect in their newly-opened marketplace: online reviews, and the number of suppliers per product. Why these two? Well, at the time, people were just getting started with e-commerce, and Amazon needed to deliver on two practical promises: saving customers time and money. By measuring the number of online reviews, Amazon could prove that their website was trustworthy by showing they had real people and products on it, as well as saving customers time by helping them find the best product for them based on user ratings. At the same time, if Amazon wanted to save customers money and time, they also needed both price competition and shipping speed competition (this was before Amazon's extensive network of warehouses).
Exponential metrics often measure network effects or progress towards them. For example, a social network startup might measure network size (number of users), network quality (how useful their social network is as measured by the number of active users) and network growth rate (the rate of increase or decrease of network members).
Long before making billions on advertising, Facebook's success was measured by the total number of users (network size), and then the number of users who kept wanting to come back (network quality).
Google's success is also based on a number of networks, but the first network was a machine network—data points about websites. The more potential search results there were, the higher the network size. The less time users had to spend to find accurate search results, the higher the quality of the network. The more sites Google could index per day, the more exponential their growth was, because the machine network (search) was driving a human network (users advocating its service over competitors), which then reinforced and trained the machine network. By measuring what mattered to the user, rather than immediate profit or revenue goals, Google gained a massive lead in the search engine race.
Knowing what metrics to use for each project, and how they reflect the progress and effectiveness of the undertaking, are important when it comes to measuring success and ensuring everything is on track.
For help understanding useful information (and sorting it from useless ‘vanity’ metrics), read our Exponential Metrics for Digital Transformation guidebook.
Lyft, a ridesharing app, measured the conditions before network effects. In their launch days (and still now) they put a lot of effort into acquiring new potential passengers and drivers, which will ultimately lead to actual passengers and drivers when demand increases for rides. In 2018, ridesharing frontrunner Uber received a lot of negative press for unethical practices, and Lyft was able to capture a lot of market share from disgruntled customers who were responding to a social media call to #deleteuber. Since many Uber drivers and riders were already enrolled in Lyft's system, they were able to switch quickly. In the space of only two months, Lyft's ride volume doubled. While it might appear that Lyft was a newcomer in the right place at the right time, in fact Lyft was founded at roughly the same time as Uber. Lyft worked towards creating the conditions for these network effects for many, many years and was poised and ready.
Airbnb measured the preconditions for network effects, which were enrolling potential guests and hosts into their multi-sided market for travel lodging. Once there were enough guests and hosts, then the number of stays increased and generated the intended network effect. A traditionally-financed lodging business might have tried to launch a hotel or small network of properties and then sought out potential guests and stays to fill the current capacity—jumping quickly to a need for immediate revenue. Venture capitalists often focus on the creation of network effects for exponential returns. Because Airbnb was a venture-capital-backed company, their investors knew they needed to focus on creating a broad network before focusing on eventual profitability.
Advertising- and subscription-subsidized businesses like YouTube also focus on the creation of network effects. In its early days, in order to create the conditions for an exponential uptick in advertising revenue, Youtube measured a precursor to advertising, the numbers of video views, and before that the precursor to views, which was the number of uploaded videos. Only once YouTube had a lot of compelling content could they get views and ultimately advertising revenue.
Use this worksheet to identify metrics you currently use to track progress on new initiatives. What can you measure to show that network effects are building to “bend the curve”? Think about what kinds of data you rely on most. Now think about your exponential journey, and the kinds of network effects you’re hoping to build.
For example, Airbnb focused on metrics like number of hosts and number and quality of reviews early on to track favorable conditions for network effects, instead of traditional metrics like revenue.
INCREMENTAL
What kinds of metrics are you currently using to track progress on new initiatives?
EXPONENTIAL
What can you measure to show the network effects are building to “bend the curve”?
The resource gap comes later in the journey, when the network effect starts to kick in and growth accelerates.
You can’t support exponential growth by adding resources incrementally. You can’t hire people, add servers, or develop processes fast enough. But you also can’t afford to have all this in place ahead of time.
One solution is to look for opportunities to develop resources that can be leveraged both by incremental and exponential efforts, like customer relationship management (CRM) software which solves an immediate need in your call center but which could also help you build engaging new apps and services in the future. You might also change your hiring criteria to look for multidisciplinary talent.
It’s important to have partnerships, technologies and capabilities ready to go, and to ensure that these resources are able to scale quickly.
Sometimes the best way to close the resource gap is to sort your needs into "build, buy or partner" categories. The way to decide between these options comes down to organizational DNA, or the core characteristics your company is good at and known for. The DNA of an insurance company, for example, is usually an evaluation of risk. Look to your DNA to help you make a decision between building, buying and partnering.
A build strategy can allow you to maintain a competitive advantage. Building requires creating your own infrastructure as well as hiring and maintaining top talent, and it can be costly. In short, if you are creating something core to your value as a company, and you have the resources (like time, money, skills), you should probably build it yourself to maintain a competitive advantage.
A buy strategy can keep things simple. If the resource you need is not close to your DNA, and is instead just a utility function you need to bring your company to parity with the market, consider buying and integrating an existing function or technology to avoid distraction. While it can leave you dependent on vendors, it can get new digital offerings to market much more quickly, and it also often means that you have a lot of choices and mitigation of risk.
A partner strategy can help you grow quickly when you don't have all the pieces of a digital value proposition. For example, you might have a large customer base, and another company has financial infrastructure. Even top tech companies do this, like Apple partnering with Goldman Sachs to create the Apple Credit Card. If the solution you need is part of your DNA but you don’t have the internal resources, or you want to leap to the top of the market quickly, it may make sense to deeply partner.
Use this worksheet to identify strategies to prepare for the resource gap. Consider how and when you currently decide when to add resources to a line of business. How do you know it’s time to build up? Now consider your exponential journey. How could you have resources in place before they’re needed to be able to scale rapidly once network effects start kicking in?
For example, a company in the early stages of building a multi-sided platform might put resources towards data governance and consolidation, which benefit both lines of business.
INCREMENTAL
How do you currently decide when to add resources to a new initiative?
EXPONENTIAL
How could you have resources already in place
and be able to scale them rapidly once network effects start kicking in?
