S-curves

On 2021-12-24, a close relation, the one who had not taken tertiary business education, confessed that s/he had not heard of S-curves before s/he had come across the term in a YouTube video. This post is to help explain the importance of S-curves.

In a country like USA, understanding how S-curves function, can mean the difference between mere survival, and a life of luxury. Part of the reason for this is that residents are largely responsible for securing their own pensions, frequently in the form of an employer-sponsored defined-contribution pension account, popularly known as a 401 (k) after the internal revenue service (IRS) code.

That is because corporations, such as General Motors, with effective lobbyists, receive generous aid from the government when they encounter difficulties, while ordinary citizens are told to submit themselves to the vagaries of the market. It is not just the losers amongst the corporate giants that are treated generously. A winning company, such as Apple also receives help. For example, much of the technology used in the iPhone was developed under DARPA or military contracts. Mariana Mazzucato (1968 – ) explains in The Entrepreneurial State: Debunking the Public vs. Private Sector Myths (2013) that achieving advanced missions, including space flights, required “a confident ‘entrepreneurial state’ willing and able to take on the early, capital-intensive high risk areas which the private sector tends to fear.” More recently Mazzucato has written The Value of Everything: Makers and Takers in the Global Economy (2018) and Mission Economy: A Moonshot Guide to Changing Capitalism (2021), that explain her concepts in more detail.

iPhone Technology Military Funding Chart PNG
Mariana Mazzucato, The Entrepreneurial State: Debunking the Public vs. Private Sector Myths (2013)

While cellphone producers like Apple and Samsung do not own many utility = functional patents with respect to their products, they do have a number of design = ornamentation patents. These have been the source of much litigation throughout the world, although often with different design forms being the focus of contention, in different markets. In the US, Apple has generally won these disputes and been awarded damages. In other countries, including Australia, Germany, Japan, South Korea and the United Kingdom, Samsung has won, although the winning side may have flipped at different court levels. A Wikipedia article examines these cases in more detail.

There is seldom a relationship between cost and price in market economies. O of the more interesting examples occurred in the resent past, in the form of a Covid testing service. In the US, the test kit this relative gets through his/ her employer has a value/ cost of about $1 000, for a device and a test. Douglas Coupland also complained about this in Trek, AlumniUBC Fall/ Winter 2021. Asked, What is your latest purchase? He replied, “Two criminally expensive COVID tests ($780 CAD in total) just to get in and out of Los Angeles for three days of business. Scam.” p. 60. Yes, one could buy a home test in Norway, at a cost of NOK 79 from Boots pharmacy = at the time, US$8.84, without the need for any special device. They are available locally, in quantity at 10 for NOK 599, although individuals are only allowed to buy 50. However, there was no need to go to this expense. They were available free of charge to residents at the local municipal service centre. Why? The Norwegian government realized that testing was an inexpensive way to restrict new Covid cases, so that hospitals and other front-line health resources can continue to cope. Making tests free, was smart because it eliminated an important barrier (price) to testing.

In essence, there are two ways of viewing this difference in approach. It can be viewed as American companies being indirectly taxed to pay for health insurance, while the second sees Norwegian companies as being subsidized. Neither is strictly correct, but good enough to encourage reflection on the organization of society.

In Norway, pharmaceuticals are subsidized, and the price largely determined, by the government. Thus, there is a built in safety net and other mechanisms that ensure most people can live a satisfactory life somewhere between the two extremes of survival and luxury. In the Nordic countries, an understanding of S-curves is not nearly so important as it is in the US or Canada.

Not everything is perfect. Currently, in Norway, we are experiencing a challenge with respect to electricity prices. Electricity, it appears, is no longer being considered as part of the infrastructure to be supplied to residents if not at cost, at an affordable price. After eight years of a conservative government, it is regarded as a market opportunity to be exploited. The cost of producing hydro-electric power is estimated to be between NOK 0.05 and 0.15 per kWh, which means that it could be supplied to consumers at less than NOK 0.20 per kWh. This past year, it has sold for over NOK 8.00, because of a European shortage and because companies can get away with it. Earlier, in 2021-02 the conservative government was asked to put into place mechanisms to prevent situations like this occurring. They replied that there was no need. The current Labour/ Centre party coalition seems unable to do anything, apart from provide some subsidies.

In San Francisco, where I have immediate family living, and in Vancouver, Canada, where I was born, the type of house I grew up in costs well over one million dollars, in local currency. Currently, the most expensive single family dwelling on the market for sale in Inderøy, Norway with 175 square meters of living space, six bedrooms, probably several bathrooms, and a double garage, has an asking price of about NOK 3.5 million or just under US$ 400 000. There are also financial mechanisms ensuring people have a down payment, and preventing people from overextending their income.

There are major problems regarding factual information. As I wrote this post, I felt obliged to comment about an Infowealth posting about insurance disruption: Since I am watching this about two weeks after its publication, I am uncertain how many others have taken up the history of insurance. Insurance, more generally, began in Babylonia at least 3 700 years ago, and has existed through all of the major historical periods since then, including the Middle Ages. Even in the US, many people point to the Philadelphia Contributionship, co-founded by Benjamin Franklin in 1752, 269 years ago. If one looks just at cars, then there were liability insurance policies issued in the late 1890s (that’s 125 years ago), and it was mandated in Ohio in 1925, which is almost 100 years ago. So, when the video starts off with “The history of the insurance industry dates back to a little over a half century ago” it is beginning with a factually incorrect statement. If you want people to watch your channel start off by researching your facts! While I am aware that even American presidents can get away with lies, some of us are concerned about truth. Thus, when someone starts off a video or podcast or article with incorrect facts, the author of that incorrect information will loose many viewers/ listeners/ readers for life, Infowealth.

In general, people like to discuss two types of growth, linear and exponential. Common for both of these is that they cannot continue indefinitely. So, linear growth is often replaced with a steady state. Exponential growth also ends up in a similar situation, but users refer to the growth picture as an S curve, because of its resemblance to that letter.

An S curve involves four stages each with a distinctive rate of growth. While many business analysts believe that each stage offers its own specific opportunities, there are no guarantees that any particular company will follow that curve. Theoretically, the first stage is an initial slow growth, during which the company develops products and attracts customers. This is followed by a period of rapid growth, with increased market share. During this stage a company typically invests in production facilities, and increased marketing and sales. It is during this period, that the company must be keenly aware of its growth ceiling and not over invest. At some point, growth with slow and the S curve will have a more gradual upward slope. At some time after this, the growth will end. In a best case situation, it will remain stable, but in many cases it will decline.

From a business perspective, inflection points are critical. These are places along the curve where internal or external factors, change the shape/ direction of the curve. Some of the factors influencing inflection points are listed below.

Technology: when a company’s competitors release a new technology or product, this may cause an inflection point for that company.

Values: initial core values of a company may change. Don’t be Evil was Google’s unofficial motto from about 2000 to 2015. In 2015, when Google became Alphabet, the motto was changed to Do the Right Thing. By 2018, this motto had all but been abandoned. Maintaining and communicating values is always hard work. Yet, because values are such an important part of corporate culture, they can trigger an inflection point.

Customers: Relationships with customers can be challenging. : As companies scale, maintaining a high level of customer attention and individual care can be challenging. This change in customer relations may change consumer behavior, bringing a decreased demand and eventually an inflection point.

Economic changes: Businesses may find their growth limited or enabled as the economy cycles through different stages.

Funding changes: Financial changes like new bank policies or government policies that affect subsidies, grants and loans can limit or enable a company’s growth, bringing an inflection point.

Infrastructure: New infrastructure can enable businesses to distribute much more easily, while changes in publicly maintained infrastructure may cause temporary or permanent additional costs.

Market saturation: If a company’s product was very successful in a certain market, demand for their product may go down when they have reached a majority of their possible customers.

Natural disasters: Natural disasters can change what resources and infrastructure are available over the long or short term, sometimes bringing inflection points for entire industries.

Regulatory changes: Additional regulations that impact a company’s production or distribution can slow their growth and cause a negative inflection point, while reduced regulations may cause a sudden growth increase.

Scaling issues: Some companies may have internal decision-making challenges when they begin to scale, as founders and leadership work to hire, supervise and provide for a larger group of employees.

Slower innovation: New companies or products that are built on new technology may face challenges to their rate of innovation as they scale and their development process changes. If innovation doesn’t meet customer needs or keep up with competitors, this can cause an inflection point.

Trends: The rise and fall of trends often causes inflection points for products perceived as luxuries or items that gain viral popularity.

The challenge with this sort of information is that the world is in the middle of a makeover, an unpleasant one described as a climate crisis or global warming. The challenge is that consumption has to be reduced. I remember, some years ago now, that in some Californian population centre, there was a need to reduce water consumption. My imperfect recollection, was that they recommended that everyone reduce it by 10%. This, of course, is utterly unfair. The swimming pool owner who changes water weekly, will only have to miss one week out of ten to align him/ herself with the regulations. Someone, who is already using minimal amounts of water will have much greater difficulties.

It is my opinion that as the climate situation imposes greater strains on the world, there will be a need for strict rationing of resources. Money won’t be able to buy everything, because it is far too unequally shared. One sees this with road pricing. There is a group of people where extra charges have absolutely no effect on behaviour.

Technocracy, despite its limitations, is the organizational model I seek out in times of crises. It accounts for everything not in terms of dollars/ euros/ crowns, but in terms of energy units, joules (J) or Watt-hours (Wh), with 1 Wh = 3 600 J = 3.6 kJ. Every product has all of its component energies, baked into an energy price. In an egalitarian Technate, the social organization, each person receives an equal share of the energy resources, that can be spent as desired. In less equal systems, this share varies.

Technocracy will be described in another post, originally intended to be published 2023-03-11 at 12:00 (EST), but currently postponed. Its future publication date will be announced, after it has been determined.

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