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Outlier’s Path

Break Down Hard Problems

In a past post, we explored combining long-time horizons with consistent compounding. The results are extraordinary for investing, company building, and many other aspects of our lives. “We work in a dynamic world where founders can transform a seed of an idea into a unicorn or a decacorn in a decade. In the right hands, that seed can be further fashioned into a trillion-dollar company over a few decades, which is the case for Apple, Nvidia, and Google.”

Since we are now in early June, most board discussions are reviewing almost locked-in results for the first half and ensuring a solid second half of 2024. For companies that have achieved scale, fighting the law of large numbers and continuing to grow at a high rate consistently become recurring hot topics.

How can some companies grow consistently at high rates and on a large scale for a long time? Anecdotes from technology and business history ensue. The pep talk is valuable because it helps us dream and gives us confidence that we, too, can solve our challenging growth problems.

When faced with significant and challenging problems, it is often helpful to break them down into smaller, bite-size pieces. What are visions and growth targets for your various products, categories, business units, or geographic regions? Once we have that, do we have near-term, mid-term, and long-term plans for the different components? Telescoping plans into the future ensure connectivity between working backward and working forward.

Amazon breaks down its e-commerce business into merchandise categories. Airbnb divides its geographies by country and groups them into maturing, developing, and emerging. DoorDash reduces its GMV growth down to cities and neighborhood starting points. By doing this decomposition, we notice that the law of large numbers doesn’t apply equally. The most critical problems to solve are different for the various components. We see that total growth is a stack of many elements, each at a different level of maturity. While we still want to push for growth in maturing segments, pricing strategy and cost advantages come into focus so we can funnel more profits to other segments. For developing segments, we focus on scaling sustainably and repeatably. For emerging segments, we focus on product differentiation and the different needs of customers in early development.

Henry Ford said, “nothing is particularly hard if you divide it into small jobs.” Similarly, Rene Descartes would “divide each difficulty into as many parts as is feasible and necessary to resolve it.” When we encounter significant and challenging problems this week, try breaking them down into smaller ones.