5 ms·

Everything I learned in business I learned from these 3 charts

78 points by sayemm 16y ago

lbrandy 16y ago
It should be pointed out that this is actually 2 charts. The final chart is, in essence, just the first half of the sigmoid.
- lmkg 16y ago
  Not really. If you cut the sigmoid in half they do look similar, but that doesn't mean that they're the same function. They behave differently (the Sigmoid has an inflection point, which is a Big Deal), but more importantly, they represent different types of relationships. The final graph shows population growth or network effects, both of which have the potential to be unbounded[1]. The sigmoid has a definite carrying capacity. In fact, knowing if your chart is really the last one or the first half of a sigmoid is very useful, because that tells you whether you need to plan for an inflection point. [1] This depends on what the x-axis represents. If you're plotting against time, you'll always be bounded due to finite resources. If you're plotting against resources or network size, value and even marginal value can be unbounded.
deleted 16y ago
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mahmud 16y ago
More of this please. Business made sexy with quantitative measurement and analysis. What do you call this field of study? Any book recommendations on analytic business like this? I want more!
- krmmalik 16y ago
  I've recently been introduced to this sexy side of business too. I havent had a chance to read it myself, but i was recommended a book called "competing for analytics" by Davenport. Maybe that will be of use to you? (Are you on GoodReads incidentally?)
- nielr1 16y ago
  I constantly read tons of business books. Some are pretty cheesy, some have lots of good insights buried in them. Good reads: Emotional Intelligence (http://amzn.to/9LXV1x http://amzn.to/9LXV1x) The House Advantage (http://amzn.to/95VsAv http://amzn.to/95VsAv) - full disclosure this is my friends book and Trada is mentioned in it but its a great look at using stats in business Statistics (http://amzn.to/bUZTcW http://amzn.to/bUZTcW) - oddly a great read
nostromo 16y ago
> If you find yourself in [a bifurcated distribution] scenario, you’re likely heading towards a problem. I know several companies that offer small business and enterprise solutions, with entirely different pricing, sales teams and compensation, and they do so very successfully. The author doesn't say why this is a problem, just that it is. I think this broad statement needs more support.
- dgudkov 16y ago
  I suggest the author's point is differentiation - not using the same model/approach for different businesses.
  - nielr1 16y ago
    Clearly many businesses have bifurcated price points. I totally agree this can work. The question is when? If you walk into Target you can buy a pack of gum and a $1000 garden set. My point was in the context of most startups (tech primarily) its usually a bad sign in your business when very early on you see bifurcation in pricing. I've been involved in many businesses that have seen that and the ones that convinced themselves they could serve both types of customers learned the hard way that you only get to do that when you've got a solid foundation in your business of one type or another.
yosho 16y ago
Coming from a semi business background, I can say I've learned a lot more in business than purely relates to those 3 charts. He barely touched on accounting, financials, and economics. He didn't talk about organizational behavior, effective management, and team structure. Sometimes, I feel like everyone dismisses business because a lot of it isn't that quantifiable... but really, the difficulty of business is IN the fact that most of the skills involved can't be quantified.
- nielr1 16y ago
  The reason that i didn't touch on any of these things is that the necessary skills for them all (that you mention and many more) are relative to a point in time and very much related to the charts i talked about. Let's use an example: what's "the right" organizational structure. By definition it changes as a company grows. An organization will need to be structured differently at 3 people, 12 people, 30 people, 65 people, etc.. This is, in fact, a demonstration of understanding the S-curve and how it applies all over a business. Something parochial like accounting is actually the same thing. The complexity of our accounting (and need for systems, experts, auditing, etc..) was directly related to us hitting a network effect in our business. As they say - you can run accounting of a bad business really well. I'm not disagreeing with you just noting that my piece was much more about how to recognize patterns that emerge in a business everywhere and know which pattern you're working with to make tactical and strategic decisions at the right time. I've written quite a bit about financials, the economics of startups, etc.. Here is a good example about business model integrity on my blog: http://parallax.blogs.com/parallax_calculating_tech/2006/05/why_every_entre.html http://parallax.blogs.com/parallax_calculating_tech/2006/05/...
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run4yourlives 16y ago
He missed a big one, sadly. Here's what I've learned about business, and it applies universally to pretty much everything. http://upload.wikimedia.org/wikipedia/en/3/33/Project_Triangle.svg http://upload.wikimedia.org/wikipedia/en/3/33/Project_Triang...
- techiferous 16y ago
  The right technology can change that game. Consider book distribution before the printing press vs. today. Better, faster, and cheaper.
  - run4yourlives 16y ago
    I've got news for you, you aren't building a printing press no matter how much you think that you are. That's why nobody heeds the diagram; everyone is so sure they have the world's first printing press.
    - deleted 16y ago
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    - deleted 16y ago
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    - techiferous 16y ago
      Most categorical statements are only useful as heuristics, not as hard and fast rules. EDIT: I agree with your statement as a heuristic, but not as a rule. Printing presses do, in fact, exist. Someone had to invent the technology.
      - run4yourlives 16y ago
        This one is about as hard and fast as you can get though. That's my point. The moment you leave room for printing presses, you leave room for everyone to just assume they are building one. I agree that occasionally, a revolution comes along. However they are called revolutions for a reason, and the odds are highly stacked that while you may indeed be building a successful product, it is not going to be revolutionary. The key to all that is that even if it is, and you follow the diagram, it will cause you little to no pain. Too many people think that their particular project somehow escapes this simple truth. That's the problem.
deleted 16y ago
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yurylifshits 16y ago
"Sigmoid" observation also is known as "Diminishing returns" http://en.wikipedia.org/wiki/Diminishing_returns http://en.wikipedia.org/wiki/Diminishing_returns
DennisP 16y ago
The idea that linear businesses are bad leaves out businesses like 37Signals, which seems to be doing well. Each customer is pretty much self-contained. They aren't really connected to other customers, so there's no network effect. But 37Signals seems to be doing pretty well. They aren't going to grow massively and be the next EBay, but they do have a nice profitable business.

78 points by sayemm 16y ago

It should be pointed out that this is actually 2 charts. The final chart is, in essence, just the first half of the sigmoid.

lmkg 16y ago
Not really. If you cut the sigmoid in half they do look similar, but that doesn't mean that they're the same function. They behave differently (the Sigmoid has an inflection point, which is a Big Deal), but more importantly, they represent different types of relationships. The final graph shows population growth or network effects, both of which have the potential to be unbounded[1]. The sigmoid has a definite carrying capacity. In fact, knowing if your chart is really the last one or the first half of a sigmoid is very useful, because that tells you whether you need to plan for an inflection point. [1] This depends on what the x-axis represents. If you're plotting against time, you'll always be bounded due to finite resources. If you're plotting against resources or network size, value and even marginal value can be unbounded.

deleted 16y ago

[deleted]

mahmud 16y ago

More of this please. Business made sexy with quantitative measurement and analysis. What do you call this field of study? Any book recommendations on analytic business like this? I want more!

krmmalik 16y ago
I've recently been introduced to this sexy side of business too. I havent had a chance to read it myself, but i was recommended a book called "competing for analytics" by Davenport. Maybe that will be of use to you? (Are you on GoodReads incidentally?)
nielr1 16y ago
I constantly read tons of business books. Some are pretty cheesy, some have lots of good insights buried in them. Good reads: Emotional Intelligence (http://amzn.to/9LXV1x http://amzn.to/9LXV1x) The House Advantage (http://amzn.to/95VsAv http://amzn.to/95VsAv) - full disclosure this is my friends book and Trada is mentioned in it but its a great look at using stats in business Statistics (http://amzn.to/bUZTcW http://amzn.to/bUZTcW) - oddly a great read

nostromo 16y ago

> If you find yourself in [a bifurcated distribution] scenario, you’re likely heading towards a problem. I know several companies that offer small business and enterprise solutions, with entirely different pricing, sales teams and compensation, and they do so very successfully. The author doesn't say why this is a problem, just that it is. I think this broad statement needs more support.

dgudkov 16y ago
I suggest the author's point is differentiation - not using the same model/approach for different businesses.
- nielr1 16y ago
  Clearly many businesses have bifurcated price points. I totally agree this can work. The question is when? If you walk into Target you can buy a pack of gum and a $1000 garden set. My point was in the context of most startups (tech primarily) its usually a bad sign in your business when very early on you see bifurcation in pricing. I've been involved in many businesses that have seen that and the ones that convinced themselves they could serve both types of customers learned the hard way that you only get to do that when you've got a solid foundation in your business of one type or another.

yosho 16y ago

Coming from a semi business background, I can say I've learned a lot more in business than purely relates to those 3 charts. He barely touched on accounting, financials, and economics. He didn't talk about organizational behavior, effective management, and team structure. Sometimes, I feel like everyone dismisses business because a lot of it isn't that quantifiable... but really, the difficulty of business is IN the fact that most of the skills involved can't be quantified.

nielr1 16y ago
The reason that i didn't touch on any of these things is that the necessary skills for them all (that you mention and many more) are relative to a point in time and very much related to the charts i talked about. Let's use an example: what's "the right" organizational structure. By definition it changes as a company grows. An organization will need to be structured differently at 3 people, 12 people, 30 people, 65 people, etc.. This is, in fact, a demonstration of understanding the S-curve and how it applies all over a business. Something parochial like accounting is actually the same thing. The complexity of our accounting (and need for systems, experts, auditing, etc..) was directly related to us hitting a network effect in our business. As they say - you can run accounting of a bad business really well. I'm not disagreeing with you just noting that my piece was much more about how to recognize patterns that emerge in a business everywhere and know which pattern you're working with to make tactical and strategic decisions at the right time. I've written quite a bit about financials, the economics of startups, etc.. Here is a good example about business model integrity on my blog: http://parallax.blogs.com/parallax_calculating_tech/2006/05/why_every_entre.html http://parallax.blogs.com/parallax_calculating_tech/2006/05/...

deleted 16y ago

[deleted]

run4yourlives 16y ago

He missed a big one, sadly. Here's what I've learned about business, and it applies universally to pretty much everything. http://upload.wikimedia.org/wikipedia/en/3/33/Project_Triangle.svg http://upload.wikimedia.org/wikipedia/en/3/33/Project_Triang...

techiferous 16y ago
The right technology can change that game. Consider book distribution before the printing press vs. today. Better, faster, and cheaper.
- run4yourlives 16y ago
  I've got news for you, you aren't building a printing press no matter how much you think that you are. That's why nobody heeds the diagram; everyone is so sure they have the world's first printing press.
  - deleted 16y ago
    [deleted]
  - deleted 16y ago
    [deleted]
  - techiferous 16y ago
    Most categorical statements are only useful as heuristics, not as hard and fast rules. EDIT: I agree with your statement as a heuristic, but not as a rule. Printing presses do, in fact, exist. Someone had to invent the technology.
    - run4yourlives 16y ago
      This one is about as hard and fast as you can get though. That's my point. The moment you leave room for printing presses, you leave room for everyone to just assume they are building one. I agree that occasionally, a revolution comes along. However they are called revolutions for a reason, and the odds are highly stacked that while you may indeed be building a successful product, it is not going to be revolutionary. The key to all that is that even if it is, and you follow the diagram, it will cause you little to no pain. Too many people think that their particular project somehow escapes this simple truth. That's the problem.

deleted 16y ago

[deleted]

yurylifshits 16y ago

"Sigmoid" observation also is known as "Diminishing returns" http://en.wikipedia.org/wiki/Diminishing_returns http://en.wikipedia.org/wiki/Diminishing_returns

DennisP 16y ago

The idea that linear businesses are bad leaves out businesses like 37Signals, which seems to be doing well. Each customer is pretty much self-contained. They aren't really connected to other customers, so there's no network effect. But 37Signals seems to be doing pretty well. They aren't going to grow massively and be the next EBay, but they do have a nice profitable business.