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Look for exponential growth

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What triggered Jeff Bezos, founder of Amazon.com, to put all his eggs in 1994 into his online business and its commercialisation?

Was it love of books? Was it confidence in his programming capability, which first developed in high school? Being a graduate of Princeton where he designed a computer system to calculate DNA sequences? Securing angel investors? Or was it securing venture capital from a blue chip Silicon Valley firm?

It was all of that. And none of that.

Richard L. Brandt, author of One Click: Jeff Bezos and the Rise of Amazon.com, assures us page after page that the trigger was Bezos noted in 1994 the exponential growth in the numbers of users of the internet.

What Brandt does not note, and which I'm very well aware of, is that in the early 1990s internet user numbers growth phase, there was very real evidence that a disproportionate number of users were book readers. 80-20-RuleUnsurprisingly, voracious book readers and buyers were early adopters after the internet was opening up in the late 1980s for commercial use.

Bezos sought to capitalise on the opportunity of exponential growth in the early 1990s in the number of users of the internet.

The theme here is: growth can be perceived with numbers and examining them can tell you about the pattern of change today and for tomorrow or ahead. It's then a question of acting on hunches, intuition, perceptions or data inspired by those numbers. Bezos did just that.

The latest reminder of this theme arrived for me today while I was reading a morning newspaper in my regular coffee bar. It was a reminder about the iPod of coffee pod systems.

Nespresso's growth

I was reading a New York Times update on the extent to which Nespresso in 2011 contributed to the growth of Nestle.

exponential-growthIf you are unfamiliar, Nespresso machines use Nespresso pods for producing coffee at home or work, without having to grind coffee and clean up afterwards. Think of Nespresso as the iPod and the Nespresso pods as iTunes, the most important product Apple has had in the last decade, central to its wealth generation.

Another analogy is to think of the Nespresso as a razer, and the pods as the blades.

Yes, Nespresso had 2011 global sales of US$3.9 billion. This is up from US$3.2 billion in 2010 as reported in Lightbulb's last mention of Nespresso in Intellectual property commercialisation simplified.

Yes, Nespresso, generated 20% of the total sales growth in the 2011 fiscal year for its parent company, Nestle. That is remarkable when you recognise that in Australia, for example, Nestle has 4,161 product lines according to an Australian Financial Review  article today.

But the really big number comes from Michael C. Bellas, chairman and chief executive of Beverage Marketing consulting company in the US. Referring to coffee pod systems, which Starbucks is about to release as well, he says, presumably for the US market alone: "Sales of coffee for these systems have grown in the high double digits in the last three to four years, jumping 66.1% last year." Now that's exponential growth.

The full article is well worth reading here, Nespresso Coffee Develops a Taste for TV. It notes that a stream of new companies are launching into this coffee pod systems new frontier of exponential growth.

80-20 Rule

The story of Amazon and of Nespresso have a common theme. They follow what exponents of the 80/20 Rule preach. If nothing else the 80-20 Rule tells us about the importance of your 20% numbers. They may be data on 20% or less of your sign-ups of particular categories of customers; or 20% of sales by units or revenue, of a particular product; or 20% of some other notable and unsual data.

The appearance and growth in such 20% numbers often in time are more important than the present 80% numbers.

Timing investment is difficult and important. Monitoring for the 20% is perhaps easier.

Critically the 20% is generally about what's important for tomorrow, but the 80% is about today or worse, what happened yesterday or years ago.

The 80-20 Rule tells us to seek and monitor data on the direction of change. It also reminds us to apply a practical 80-20 Rule habit - monitor change, act on it, invest in it too. Nestle did for Nespresso. Bezos did for Amazon.

 


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