The Myth of Exponential Growth
The notion that high-growth companies experience exponential growth is a pervasive myth, even for companies labeled as "viral" or exhibiting "network effects." But is this notion accurate? By analyzing real-world data, a different pattern emerges.
Companies like Facebook, Slack, Dropbox, and others exhibit growth trajectories that are better described as quadratic rather than exponential. The key reason? Their growth is driven by the accumulation of multiple "Elephant Curves" (see image below) across marketing campaigns, product lines, and geographical expansions.
An Elephant Curve represents the typical lifecycle of a growth driver – an initial ramp-up phase, followed by optimization and linear growth, eventually tapering off as it saturates. When multiple such curves are stacked together, the overall growth pattern becomes quadratic.
Even for products with viral mechanics or word-of-mouth spread, the logistic curve model (S curve) is a better fit. It starts exponentially but flattens out due to market saturation. The aggregate of multiple logistic curves across markets or product lines results in an overall quadratic growth trajectory.
It’s best to break down growth into components(market size, market share, monetization) for better analysis and actionable insights. Instead of chasing an elusive "exponential" dream, successful companies rather focus on understanding and optimizing the underlying drivers of their quadratic growth patterns.
Keeping this in mind, companies can adopt a more pragmatic approach to growth, leveraging the underlying mechanics rather than pursuing an exponential fallacy.
Credit to A Smart Bear for a much detailed blog titled ‘The Elephant in the room: The myth of exponential hypergrowth’
- Samridh Sharma, Equanimity Investments