Evolution, Not Revolution

The average person believes that great wealth is created by revolutionary breaks with tradition. The Instinctive Wealth Builder (IWB) believes in Darwin.

It’s not surprising that so many people believe in revolution. Many best-selling books have supported it. Read the popular biographies of Andrew Carnegie, John Rockefeller, or Bill Gates and you will be regaled with explanations of how they fundamentally changed the world.

Creative destruction is what we call it now.

Revolution is a more exciting concept. But it is a myth. The truth is that neither Andrew Carnegie nor John Rockefeller nor Bill Gates was a revolutionary. They all refined the ideas of thinkers of their time. In some cases, they bought those ideas. In other cases, they stole them.

Take Carnegie. He was one of the earliest and most enthusiastic adopters of the Bessemer process. It was an inexpensive way to turn raw iron into steel on a large scale. And although it had been around for decades, not many steelmakers were using it. But Carnegie understood that it would not only allow him to deliver a superior product but also underprice the competition. As a result, he saw a rapid expansion of his business and an equally fast surge in his personal wealth. In the next few years, Carnegie Steel became the preeminent steel producer in the world — and Andrew himself became one of the world’s richest men.

Bill Gates bought exclusive rights to an early forerunner of the MS-DOS computer operating software for just $50,000. He then licensed the program to IBM for use in their PCs. But he kept the rights to the actual program and was able to license it to other companies. That was the start of his multibillion-dollar fortune.

In his bestseller, The Tipping Point, Malcolm Gladwell looked at the way new products sometimes suddenly “take over” the consumer marketplace. How is it, he asked, that some products — such as Slinkies and Velcro and iPods — became enormous trends?

The traditional view, Gladwell pointed out, is that these are breakthroughs — completely different products that, for whatever reason, capture the imagination of a given market. But his research led him to a different conclusion: that trendsetting products are not breakthroughs at all; rather, they are variations on ideas that were already in the collective consciousness.

Gladwell is a researcher and writer. He is not and never has been an entrepreneur. So I would have expected him to get this all wrong. But he was right.

To explain his thesis, Gladwell used a metaphor he called “the tipping point.” It refers to an experiment done in just about every high school science class.

A glass of water is filled to the brim with water, and then droplets of water are added, one by one. What the students discover is that, contrary to their expectations, the additional droplets remain for a while on top, forming a mound of water that is actually higher than the rim of the glass. Drop by drop, the mound gets higher. And then, suddenly, one single extra drop causes the mound of water to collapse and run down the sides of the glass.

That is how consumer trends have always worked. And it’s how they work today.

In any given social context, many people share the same basic idea about some innovation that is needed. Spurred by that common notion of what should come next, individual innovators make changes. But most of these changes are absorbed into the culture without producing any significant reaction. They are, metaphorically, the additional droplets that form the mound.

These minor variations are noticed by other innovators who can see the trend (the mound) forming and recognize that, eventually, the weight of all the little changes will lead to a sudden overflow of movement.

And there is a good reason for this.

Consumers aren’t looking for brand-new products. They are looking for clever new adaptations of products they already know and love. When it comes to new, the human brain can take only a little bit of it.

The IWB knows that when you simply imitate something that is already being sold successfully, you are following the market. But to have a multimillion-dollar “breakthrough,” you have to anticipate the market.

The way to do that is not to create something brand-new, but to do something that is just a little bit better than the hottest thing out there.

Remember, it’s the tipping-point effect you are going for, that one extra change (droplet of water) that is added to many more that have been added before.

Gladwell gave these examples:

• The rebirth of Hush Puppies, the “old school” shoe that became hot in the mid-90s after being adopted by a handful of New York City hipsters, then fashion designers and artists.
• “Blue’s Clues,” which took the early learning concepts of pioneers like “Sesame Street” and improved them to make a TV show even more appealing to the preschool set.
• The novel Divine Secrets of the Ya-Ya Sisterhood by Rebecca Wells, which went from being a favorite of book clubs (made up of middle-aged women) in northern California to a national bestseller.

My own experience in business confirms Gladwell’s conclusions.

As a mentor to the publishing industry, I have been directly involved in the development of at least 50 publications. In the beginning, I made an effort to create something new — something the market didn’t have. In every case, I failed.

I remember, for example, trying to launch an investment newsletter for women in the mid-1980s. Nobody had done one before. And yet we knew that there were millions of American women who controlled trillions of dollars. Surely they needed their own newsletter.

So we found a female financial analyst and built a publication around her. We hired one of the best copywriters in the country to write the promotion. And we loaded it up with premiums and sold it at a great price.

The result? A complete flop.

It turned out that women who were inclined to read investment advice perceived our pitch for what it was — a gimmick. “I don’t want information advice designed for woman,” one female subscriber told me. “I want the best you have — man, woman, or hermaphrodite!”

In the real estate development business in the early 1990s, I made a similar mistake. My partners and I had the idea that we could sell super-fine luxury homes in an exclusive golf course community. Instead of giving people what they were already buying — “big white boxes with Sub-Zero refrigerators,” as one of my partners described them — we offered truly well-built, customized homes. But our prospects couldn’t tell the difference between our products and the grossly inferior properties that were selling like hotcakes.

The secret to innovation, I’ve come to believe, is the old 80/20 formula. Give them 80 percent of what they are already buying and only 20 percent of something new. (As I said, when it comes to new, the human brain can take only a little bit of it.)

The 20 percent matters. But the 80 percent keeps you in business.

Here’s an extension of this idea that you won’t hear anywhere else…

If you come up with a tipping-point idea that sells very well, don’t rest on your laurels. “Evolutionize” it.

By that I mean start to think about the next step: what extra twist you can give your hot product that will make it seem like yesterday’s news in the near future.

I learned this lesson in the early 1980s. My partner and I were making out like bandits with a very successful product — but within a year, our competitors were knocking us off. Most of them didn’t come up with anything that worked very well. But some of them did evolutionize our idea. And their products sold, sometimes eclipsing our success. We didn’t like that.

So what we began to do was to knock ourselves off.

Rather than wait for a competitor to knock off a good product, we would knock it off — but creatively, by inventing a new and better version almost as soon as we knew the first product was a winner.

An example that quickly comes to mind is The Oxford Club. I created it in 1983. Six months later, a competitor created a variation. That failed, but I realized that if I waited much longer someone would come up with a better idea. So I got to work and created a variation for a slightly different corner of the market. That product is still in existence — and is making its owner (we sold it, stupidly) a ton of money.

Imitation doesn’t work, because it is always too little and too late. But noticing what products are working and then creating new products with features that are somehow more advanced — that’s how you get the breakthroughs.

To think like an IWB, do this:

When you come up with a new moneymaking idea, search the Internet to see if anyone else is thinking about it or doing it already.

If you can’t find it anywhere, don’t get excited; get depressed. There is a reason you can’t find it. And it’s not because it hasn’t been thought of before. It’s because it’s been tried and it has failed. Don’t invest any time or money in it.

When you come up with an idea that several or even many other people are already working on, get excited. Ask yourself, “Is my twist on this idea a useful one?” And by “useful” I don’t mean it will improve the product. I mean it will make it easier to sell.

Remember that the greatest tipping-point ideas are only partly new. Consumers like things that are 80 percent or 90 percent the same and only 10 percent or 20 percent new.

Most important, ask yourself, “Can I explain my twist on this idea in a way that gets people excited?” Write some advertising copy. Test it out in small samples. Pay attention to the response. If it is not sensational, put that idea on the back burner and think about it for a while.

The concept of “evolution, not revolution” works in all businesses, in any market. But the fastest and easiest way to implement it is on the Internet. Online, you can research your competition for free. You can test products, advertising copy, and more very cheaply. Even the cost of delivering your products can be nearly free. Plus, the Internet allows you to react very quickly to changes in the market, take advantage of hot trends, and get out the instant a trend starts to die down.

As a result, the process of starting a potentially super-successful online business in your niche can take just a few days.

If you’re worried that you don’t have the marketing or technical experience to start your own online venture, not a problem. The Early to Rise team has put together a program to address that very concern.

[Ed. Note: Mark Morgan Ford was the creator of Early To Rise. In 2011, Mark retired from ETR and now writes the Palm Beach Letter. His advice, in our opinion, continues to get better and better with every essay, particularly in the controversial ones we have shared today. We encourage you to read everything you can that has been written by Mark.]