Insights & Thoughts on Product Development, Life Hacks and Team Dynamics — Clips of Logic — T.S. Lim

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Exponential growth

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I'm sure all of you know the power of compound interest. Whenever you add the interest you earn to your principal and let the interest itself earns interest, you have compound interest. The growth on your principal over time is exponential. What this means is that, if you have a steady growth of 10%, your principal will double in roughly 7.2 years. This is known as the Rule of 72. In order to calculate when your principal will double, take the number 72 and divide it by the interest earn per year.

10% interest per year - 72 / 10 = 7.2 years

7% interest per year - 72 / 7 = 10.28 years

3% interest per year - 72 / 3 = 24 years

If you attempt to calculate how long it will take to double your net worth with the current fixed/term deposit interest rate, you'll find out it takes an awful long amount of time. Most of us will consider 2-3% growth a year to be rather small and at times negligible.

But things are very different when the numbers are much bigger. Take world population as an example. Current population growth rate is around 1%. Total world population now is at 6.8 billion. 1% is equivalent to  68 million.

1% of 6.8 billion = 68 million

1% growth per year means it takes 72 years to double.

In about 3/4 of a century, there will be more than 13 billion of us on this planet

No one can explain the power of exponential growth better than Professor Albert Bartlett (retired Physics prof. at University of Colorado-Boulde). In his presentation titled "Arithmetic, Population, and Energy", he show us what are the consequences of 'steady growth' to population and energy usage.

The greatest shortcoming of the human race is our inability to understand the exponential function. - Professor Albert Bartlett

Set aside 1 hour of your time and watch his presentation on Youtube. It's just simple arithmetic and very easy to follow. It makes you wonder if steady growth is always good and grasp the true meaning of the exponential growth. I've included the first video below for your convenience.

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Ramp vs Treadmill

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Are you charging higher and higher for your products or services as time goes by? Or are you charging the same rate or worse, less and less? Dave Navarro argues that if you are not charging more, you are using the wrong business model.

Your business can be one of two things: A ramp, or a treadmill.

A ramp leads to a bigger and bigger business.  A treadmill leads to more of the same, and a plateau of sales.  (Or, if you have a fancy treadmill, a gentle incline that doesn’t get you that much farther.)

A ramp gets you to the next level.  A treadmill doesn’t.

Credits: Dave Navarro

However, don't be mistaken and think that all you need to do is increase the price of your products. You need to increase the value provided by your products and services. To command a premium, you need to improve your skills, innovate and be different.

Read the post by Dave on why you should build your own ramp and how to go about it.

Don't be content with running on the same spot. Build a ramp by improving and innovating the value you can deliver to your customers. Only a ramp can bring you and your business forward.

Trading time for money

We are trained since young that we can trade our time for money. You can give up some of your play time and do some chores around the house for extra pocket money to buy that toy you always wanted. This is reinforced as we enter the workforce. An employee is compensated weekly or monthly for their services while a freelancer charges hourly for her work.

Since there is only 24 hours a day and 7 days a week, the most obvious ways to increase your income is to get a higher paying job or to charge more for your products and services.

Ideally, you wouldn't want your income to be limited by the time you spent on your work. You could hire others to help you grow and expand your business.

However, not everyone have the luxury to get others to work for them. Most of us have to do the bulk of the work ourselves. So how do we make this trade worthwhile?

I believe the answer is passion. With passion, you will be willing to sacrifice your personal time to get things done. With passion, the work you do is art. And without passion, whatever you do can and will be replaced by someone or worse, something else in the future.

If you are passionate in what you do, you wouldn't mind trading as much as your time for it. In fact you will make time for it. And with all that passion, I'm sure the result is something others are willing to pay more for.

Don't just trade time for money, trade it for your passion and you wouldn't need to worry about money then.

Be creative, anywhere, everywhere

One of the reason I chose to work in the software industry is that it makes it possible for me to create something. The ability to turn your ideas into reality can be extremely fulfilling. The software industry is part of the creative industries where you deal with ideas, knowledge and information. If you are generating or exploiting knowledge and information, then you are too part of this industry.

Personally, I think everyone should be in the creative industry. What I mean by that is that everyone should be creative in their work. No matter how repetitive and boring your job is, there's definitely something you can change and make a difference.

If you are a factory worker doing the same thing like everyone else, you could lead your fellow co-workers to ensure that all your benefits and welfare are taken care of.

As a sales person in multi-national company, you could treat your clients with respect and provide the best customer service among your colleagues.

No one else is better suited to improve and enhance your job than you. You are armed with the domain knowledge to know what works best for you and your clients. All it takes is some creativity to bring things to the next level.

The next time anybody complains about their job, tell them to shut down their lizard brain and start getting creative in their work.

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Pricing ahead

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This is an excerpt from the book Free by Chris Anderson. He's the one who coined the term Long Tail and wrote a book about it.

In the early 1960s, Fairchild Semiconductor was selling a specialized early transistor, called the 1211, to the military. Each transistor cost $100 to make. Fairchild wanted to sell the transistor to RCA for use in their new UHF television tuner. At the time RCA was using traditional vacuum tubes, which cost only $1.05

What they did was the unthinkable. They lowered their price to $1.05 from the start, banking on the fact that once production volume increases, the cost of each transistor will fall dramatically. Two years later they were able to sell the transistors at 50 cents a piece and still make a profit.

We were going to make the chips in a factory we hadn't built, using a process we hadn't yet developed, but the bottom line was: We were out there the next week quoting $1.05, we were selling into the future - Jerry Sanders

As stated by Moore's law, the number of transistors that can be placed inexpensively on an integrated circuit doubles approximately every two years. This also applies to hard disk capacity and network bandwidth which both gets cheaper and cheaper in a faster rate than transistors.

Knowing this, it is not hard to see why Google paid 1.6 billion dollars for Youtube a few years ago. Even though, at that time the service was burning milions a month for bandwidth and lacks a proper business model. Google banked on the fact that eventually the cost of storage and bandwidth will get cheaper and cheaper.

The ability to price your product way ahead of the price decline curve can be extremely disruptive. This is the very nature of the web and software. After all, they are just bits of information and eventually the only factor that determines the price of your product is not its cost but the value it creates.

The rider and the elephant

Recently started reading Switch, a book about how we react to change, I learned about the The Happiness Hypothesis by Jonathan Haidt. He's a psychologist and his analogy about the 2 different aspects of  our behavior is very interesting. We have a logical/rational side which is known as the Rider, and emotional side dubbed the Elephant. As you might expect, the Rider is the one in control and guiding the Elephant. However, this is only an illusion because when both sides can't agree with each other, the Elephant is going to win most of the time. The Rider will be outmatched by the Elephant whenever there's a conflict between them.

This is a problem because the Elephant side of us is usually lazy and prefer instant gratifications. The Elephant is all about short term gain where the Rider prefer to analyze and plan for the future. But the Rider have it's own weakness where it usually spend too much time analyzing and end up doing nothing. The Rider gets analysis paralysis.

The book teaches you how to appeal to both the Elephant and the Rider to get change to happen. I think this applies to everything we do. Elephant is the source of energy where as the Rider is the one with the direction.

Passion without direction is useless. And so is direction without motivation. If you want to get things done, try your best to appeal to both the Elephant and the Rider.

Tomorrow

Surely at one point in your life, someone would have told you to live your life like there's no tomorrow. You got to enjoy the things you have and live in the moment. Do what you want right now because you might never get a chance later. On the other hand, don't you feel it's sad to assume that tomorrow may never come? There are goals and tasks that takes longer than a day to complete. We all need something to look forward to. After all, hope is one the strongest drive you can have in life.

I think we should do our best today to have a better tomorrow. We should push ourselves to the limit every single day not because you might not get another chance but to shape a happier and better tomorrow.

Time, money and quality

Everyone knows that time equals money. The more time you spend on doing something, the more it is going to cost you and vice versa. This means that you can manipulate one of these attributes by changing the other. The relationship between time and money isn't always linear. You can for example, spend more time on something to lower its cost. The simplest example would be to hire someone cheaper and have them work on something for a longer period of time compared to hiring an expert to finish it earlier.

This trade-off between speed and cost is something that we all are familiar with. If you are on a budget, you work around that. If you need something fast, you pay more. But things get complicated when you bring quality into the equation.

Unlike time and money, there's no reliable way to quantify quality. To make matters worse, everyone have their own definition of it. In the food industry, some diners might focus solely on the taste while the others take into account the atmosphere and service of the restaurant.

There are some cases where quality is ignored or at least of less importance. When choosing between which store to rent movies from, most of us would either choose the cheaper one or the nearer one to save time. This happens a lot when you are dealing with commodities.

When trying to differentiate your product from the rest of the market, it is best not to focus on making it cheaper or faster. The reason for this is simple. There is a limit on how fast you can do a haircut and how cheap you can charge for a meal.

Quality on the other hand, as stated before, is something more subjective. There are more ways for you to improve the quality of your products and services. You can appeal to the interest of your customers instead of their wallets and watches.

The best thing about focusing on quality is that when you are good enough, your customers will ignore the speed and cost of your product. Look at the line outside a famous restaurant. People are willing to trade their time for a chance to dine there and most of the time the bill isn't exactly cheap.

If you are starting a business or looking to revamp your product line, I think it's a good idea to look at how you can make it more attractive to your customer. Obviously you still need to keep tabs on the cost and time but it will definitely be worth your time to put a little more thoughts into the quality of your products.

The convenient choice

How often to you buy something or choose a certain business because it's more convenient for you? Maybe it's nearer or maybe your friend works there. Some businesses benefit from being more convenient to their customers. People tend to go for lunch near their office as it saves them time and effort, as long as the food is decent.

The most common factor of convenience is the location. If you open an art supplies store right beside an art school, you give the students more reason to buy from you simply because you're the nearest one available.

Another way to be more convenient is to provide extra value-added services. I would order from a restaurant with free-delivery even though there's another one right downstairs assuming both serve equally good food.

I think it's worthwhile to try to improve your convenience factor of your business to attract more customer. It's also a great way to beat your competitors by being the more convenient choice.

Shortcuts

Given a choice, most of us would choose the shortest route to accomplish something. After all, you get to save time and effort. In fact we probably spend most of our time researching and coming up with technologies that allows us to be lazier. When you become too obsess with this shortcut mentality and start applying it in everything you do, you'll start to forget that some things should be done gradually on a firm foundation.

Nothing can replace the first-hand experience you gain doing things from the ground up. You wouldn't want to build a house without first laying the foundation especially if you plan to live there yourself.

Using a shortcut to get from one place to another is fine. But if your destination is a better career, you'll need to take a different route. Preferably one that focuses more on building your foundation and have the ability to keep you at finishing line once you get there.