How good are you at making forecast about your company’s growth? Do historic figures weigh more than the current development stage of the company? Forecasting is a challenging exercise, among others because our brain keeps telling us that growth is a linear factor.
Most people accept Moore’s Law (which States that the number of transistors on integrated circuits doubles approximately every two years). Ray Kurzweil in particular is an evangelist in exponential growth and has been documenting this for over 30 years (see more here).
How could he continuously forecast the exponential growth? Because it is predictable. Yet, the principle of exponential growth is hard for us to grasp: Our intuition is linear, linearity is hard-wired in the brain. For example, Eric Schmidt (executive chairman of Google) recently stated that ‘it looks like there’s another decade or so of Moore’s Law left before physical limits are encountered.’ He may be right, but in terms of exponential growth we will ‘just’ see a shift to the next paradigm, and thus continue to experience the exponential growth. If this is true in the world of stuff as well as in the world of bits has been debated elsewhere. The fact is, however, that the exponential growth is found in a broad range of areas from transistors to DNA sequencing, etc.
Implications? Well, to those of us in the venture world – and although the exponential growth paradigm may not be applied on a company level – this serves as a reminder that fertilization of the linear growth intuition is no effective means of forecasting growth. Actually, it increases the risk of being wrong and in the case of early stage companies would typically suggest too high growth rates. Rather, we have to be apolitical in the sense that we must apply data rather than hard-wired feelings to make better assumptions when presenting financial or market forecast.