There exists an extremely important, but subtle trade-off that you will encounter over and over again in your life. It is everywhere – in personal decisions just as well as in nation-state ones. This trade-off is growth vs. efficiency, or in building new solutions vs. optimizing old ones, or in focusing on few big changes vs. many incremental ones. In this piece, I’ll explore this theme. This exploration will not be perfect: some of the examples are loose, debatable, and contingent on semantics. In that sense, growth vs. efficiency is a Lindy-style aphorism: not always strictly applicable, but a useful way to frame the world. I hope to convince you that it’s usually preferable to trade off in favor of growth.
Some businesses get built as visions of the great new thing. Other businesses get built as arbitrages, optimizing some existing thing and capturing the created spread, while that spread slowly closes. While arbitrages – efficiency plays – often print money in the short term, they rarely create lasting successes. The efficiency player arbitraging some legacy process gets outcompeted by the growth player that has imagined, and built, the vastly superior new thing.
The defining companies of our day – Tesla, Apple, Facebook, Uber, Google, and so forth – did not ever take an existing, well-worn process and ask “what if we do it 10% better and then extract a rent at massive scale?” No, they imagined and built entirely new things. That’s betting on growth.
Few great businesses have been bootstrapped. Folks like DHH advocating the “lean startup” method are squandering the potential of their adherents. Basecamp could’ve been Salesforce if they had been willing to take on venture funding and grow aggressively. If you want to be a generational success, you have to take on, and deploy effectively, enormously large quantities of capital. Many entrepreneurs are penny-wise and pound-foolish with their cap tables: painstakingly minimizing dilution and never getting the fuel they need to truly take off. They take home a slightly larger slice of a much smaller pie.
Writers like Fukuyama or Thiel have suggested this thesis: peace is only possible if the societal pie is expanding – i.e. if everyone’s wealth is growing, even if each person’s share is becoming relatively slimmer. With a growing pie, all you have to do is show up and you’ll become wealthy. The moment growth slows and a person’s wealth starts to shrink, they start playing zero-sum games. In a shrinking pie, you have to take from others to become wealthy. Again, “growth” (capitalist wealth creation) is much better at creating peace and improving lives than “efficiency” (communist wealth distribution).
I hold an unpopular view on global warming: I don’t think that our efforts to minimize CO2 emissions, etc. are useful. They are admirable efforts, but it seems overwhelmingly likely that in the next few decades, we will emit enough greenhouse gases to enter positive-feedback-loop scenarios of global warming, independent of our actions. Surely we can reduce manmade CO2 emissions to zero by 2060, but that is probably too late. What are we to do? We have to invent our way out of it. Regardless of whether that’s Geoengineering or large-scale Carbon Sequestration efforts, the only way to solve the problem is by betting on growth: inventing something new that obsoletes all parts of the issue. The efficiency play – short-term carbon emissions handwringing – is unlikely to be relevant in the long term.
Some people advocate careful budgeting, cutting your personal burn rate, FIRE, etc. as a way of becoming independent and free. I don’t agree: miserly efficiency-maximizing your spend is really just maximizing how miserable you’re willing to be. The solution? Growth. Make more money. Instead of maximizing your misery, maximize how useful you are to those around you. For most people, I guarantee you that it’s a hell of a lot easier to bump your annual earnings by 25% than to reduce your post-tax spend by 25%. Don’t focus on taking less space. Focus on being more valued. You’ll feel better, too.
If you have true product-market-fit for your business, then you will be so busy that you will have customers falling off the happy path into degenerate states all the time. The efficiency player will focus on ensuring that 100% of customers are serviced correctly, a Sisyphean task that will eat all his time. The growth player will be fine with 90% and will focus their efforts on doubling or tripling growth year over year. The growth player will win.
It is a junior move to try to ensure that everything is working correctly and efficiently. Systems at full utilization break in subtle ways all the time. If things aren’t breaking, you aren’t busy enough.
Perfect is the enemy of the good; shipping fast+decent almost always beats shipping slow+great. In 2021, shipping an algorithm that works in O(N^2) and took an hour almost always beats shipping an algorithm that is O(N) and took a day. Compute is cheap, building time isn’t.
When a new technology arrives, it is a sudden step up from the status quo. As it gains adoption, people optimize and improve it. But rarely will incremental change on a technology be as transformative as when that technology first came about. The world is littered with technologies that are no longer in use, but that have, to this day, been steadily incrementally improved for decades. If you seek to do novel things that could be done with a particular technology, you may need to do something radically new that obsoletes this technology.
The Bitcoin blocksize debate was a fine example – one side in favor of larger blocks (incremental efficiency), the other for new technology (SegWit + Lightning). The latter won decisively.
Growth vs. Efficiency is everywhere. Like Voice vs. Exit, it’s one of the universal trade-offs. From my perspective, growth – aiming for creation, making the big new thing – is usually more worthwhile than efficiency-focused incrementalism and being constrained by the paradigms of the past.
Being an efficiency-minded optimizer comes naturally to engineers and builder-types. It takes a lot of maturity – and perhaps disillusionment – to ignore incrementalist scrounging and to focus on the big swings. Avoid going from 1 to N. Always look for the opportunity to go from 0 to 1.