The year was 1970 and personal computers were a relatively new phenomenon. The HP 3000, for example, sold for $95,000 around that time, the equivalent of slightly over half a million in today’s dollars.
Yet two high school friends with an entrepreneurial spirit saw an opportunity to utilize this new technology to help traffic engineers read data reports. They formed Traf-o-Data, with the mission of building a device to improve road efficiency by eliminating the manual work.
The boys spent the next couple of years eliciting favors from their high school classmates to read and interpret data from traffic tapes, and then import it into the program they built which then printed out the traffic charts.
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Another year went by until they were ready to present their revolutionary program to the representative of traffic counting from Seattle.
Except there was a problem; it didn’t work. To make matters worse, the state of Washington soon decided to make traffic processing free to all cities. And just like that, the demand for Traf- o-Data was gone.
You may not have heard of this story, but you’ve certainly heard of the boys. Through their struggles with Traf-o-Data, Bill Gates and Paul Allen learned the necessary skills (writing Altair Basic for the MITS Altair 8800 computer) that were integral in their ability to start Microsoft just two years later.
When I speak with people just starting out in their early 20’s – whether it’s with the goal of having an ambitious poker career or starting their own side hustle – they often lament that they’ve been plugging away for a while and have yet to see results.
I often recite one of my favorite quotes by Gates: ‘most people overestimate what they can do in a year and underestimate what they can do in decade.’ (Perhaps it’s no coincidence that it would take a full decade – from 1975 to 1986 – for Microsoft to go public. The rest was history. Had you invested a mere $1,000 in Microsoft and held on for 25 years, it would be worth roughly $750,000.)
I believe this sums up a more important underlying message: success compounds over time.
What does compounding success mean? It means that it follows an exponential growth chart.
In practicality one will struggle for a long period of time before it feels as if their success is exploding overnight.
Society, who fails to understand how exponential growth works, has coined the term ‘overnight success’.
It’s not true. An overnight success happens when one arrives at what’s referred to as the ‘elbow’ of the exponential graph (the point at which it begins to tilt upwards).
Microsoft is just one of the countless examples of the power of exponential success compounding over time. Let’s take a look at three more across various industries and, most importantly, how we can apply these lessons to our own lives.
Exponential Growth Example #1: Amazon Share Price
We’ll begin with something we all know well. While there are many metrics one can use to measure success, let’s use the most common, share price.
Here’s a graph of Amazon’s share price since inception.
This is a near perfect exponential growth chart. But notice the price movement (or lack thereof) from 1995 to 2009. It was nearly flat. Then, it hit the ‘elbow’ of the exponential chart and it skyrocketed.
While growth doesn’t always follow this pattern, nor necessarily take this long, many companies follow this model of explosive growth after an initial period of going largely unnoticed.
Here’s a chart documenting Uber rides taken. Again, exponential.
I could show you countless examples, but you get the idea.
Exponential Growth Example #2: How Warren Buffett Made His Money
Most people know Buffett as one of the greatest investors of all time. His biography, fittingly titled Snowball, is a fascinating read.
What most people don’t know is that the vast majority of his wealth came in recent years. Take a look.
Buffett grinded for decades while letting his net worth slowly compound. Then, it snowballed.
Exponential Growth Example #3: Sequencing the Human Genome
The Human Genome Project began in 1990 with a 15-year estimated timeline.
Seven and a half years into the project the scientists announced they had only decoded a mere 1% of the genome. Pundits deemed the project a failure. The few who understood exponential growth however, realized it was near completion.
With the rate of progress doubling, it only takes another 7 years to go from 1% to 100% (1, 2, 4, 8, 16, 32, 64, 128). In fact, in 2003, exactly 7 years later, the first human genome was successfully sequenced.
How Exponential Growth Applies to Life
If people understood how the success model worked, they wouldn’t lament about the seemingly trivial growth in the beginning, but instead see it for what it is – laying the groundwork for the elbow of the exponential curve.
We are taught to think in linear terms. If you take 30 steps in a linear fashion – one, two, three, etc. – you’ll arrive at 30.
Most people get this.
But success doesn’t work that way. It grows exponentially. If you take 30 steps in an exponential way, you arrive at 1,000,000,000.
Great leaders have intuitively known this for centuries. Abraham Lincoln is perhaps most famous for his quote, ‘Give me six hours to chop down a tree and I will spend the first four sharpening the axe.’
If you graphed out the process of chopping down the tree, it would give one the illusion that all of the progress happened in the last two hours when in fact there was work being done during the entire time.
Humans Aren’t Hardwired to Understand Exponential Growth
‘The greatest shortcoming of the human race is the inability to understand the exponential function’. – Albert Allen Bartlett
Lack of understanding of exponential growth can have severe consequences. Take Covid-19 for example. Many people were downplaying the coronavirus and couldn’t see how a mere 100 cases was a threat to society.
This was obvious to anyone that understood how the disease multiples. Since each infected person passing the disease to an average of 2.5 others, the virus spreads exponentially. With case numbers doubling every three days, 100 cases today mean 10,000 in a few weeks.
We all know what happened.
Exponential growth is an incredible phenomenon, so much so that Einstein called it ‘the most powerful force in the Universe’. Understanding how it works in your life can help you stay on course and remain positive during the seemingly uneventful period before the growth takes off.
This is crucial, for so many people quit too early. If you have been putting in the work for years and don’t feel like you’re progressing, it may mean you simply haven’t reached the elbow.
So, hang in there.
The caveat to the exponential growth model is that one is actually a favorite to win in the game they’re playing. Just because exponentials exist, they’re by no means guaranteed. Many never hit the elbow, because they’re playing the wrong game, their business idea is abysmal, or their execution is poor. Ego often gets in the way.
It’s up to each of us to understand whether we’re headed in the right direction and if the elbow is coming in due time, or if we need to pivot to a destination where our success is more likely.
It’s one of life’s great challenges, and that’s on you.