In 'the surprising math of cities and companies' on TED Geoffrey West wonders about why companies fail and cities survive. He relates companies to patterns in the natural world where things grow fast for a while then slow down as they reach a plateau. This occurs because of economies of scale; as we grow we need less resources to maintain ourselves and end up at a steady state. The result is the s-curve of marketing 101. While we think we can extend the growth stage by being good marketers, the reality is that there are limits to the size of the firm.
While probably originally drawn on a napkin in a pub, the fates of 23,000 firms suggest that there is something fundamental going on here. And that is: companies, like mammals, have a scaling factor of less than one and therefore there is a finite limit to how big they can be. Companies striving to be efficient will stop growing at some point.
West goes on and shows that while a city's infrastructure scales the same way as biological systems certain aspects appear to scale at an ever increasing rates implied by networks. In fact he has a 15% rule; if you double the size of a city you end up with more than double the number of socially driven outputs like 'supercreatives', R&D employment, and inventors (as well as serious crimes and AIDs). All the while using 15% less resources like electrical wires, gas stations and road surface. If there are scarce resources and cities certainly face that scenario that kind of growth is unsustainable.
So, what happens?
Well every couple of decades we reset everything and start growing again along a new trajectory. And it is likely the knowledge workers, a concept first described by Peter Drucker in 50+ years ago, will create such sea change. Rather than continue along an ever increasing path to precipice they reinvent the way things are and we head off in a new direction. Think what transportation, communication and the Internet changed in terms of marketing.
For marketers this poses a conundrum, how do we continue to grow something destined to flatten out in an increasingly networked world destined to transform itself?
- Year-over-year growth is wrong for the long-term. The fact is as we become more efficient growth will be harder and harder; the economy of scale argument that we're all trained to rely on actually retards growth. Sales of the paragon of operational efficiency, Walmart, are beginning to plateau.
- Socially driven markets will invent ways to change themselves in order to survive. Any attempt to fight these changes and maintain the status quo is a recipe for disaster. One might consider 'disruptive innovation' to be a showcase for how creatively we can change things up.