Chapter 11: Making 400 Years Worth of Progress Quickly by Further Multiplying Exponential Improvements

Chapter 11

Making 400 Years Worth of Progress Quickly by Further Multiplying

Exponential Improvements

 

To see what’s in front of one’s nose requires a constant struggle.

— George Orwell

What if breakthroughs could have multiplier effects on other breakthroughs? Multiplying exponential improvements through connecting solutions that enhance each other’s results provided the breakthrough concept we had been waiting for in developing the 400 Year Project. Keep multiplying the right exponential improvements, and you could compress 400 years worth of normal improvements into just a few years. Although we continue to seek alternate methods for speeding improvements by 20 times, clearly the existing method for generating 2,000 percent solutions gives us the foundation for planning how to provide the improvements that would normally be implemented by 2435 in 2035.

If you are like most people, you haven’t created your first 2,000 percent solution yet. You won’t get much benefit out of these perspectives on multiplying exponential improvements until you do. By paying attention to the questions in The 2,000 Percent Solution, The 2,000 Percent Solution Workbook, and The 2,000 Percent Squared Solution, you’ll quickly add that skill. Once you have added the skill and enjoyed that experience, you’ll begin to appreciate how critical your choice of improvements to focus on is to the magnitude of your accomplishments.

In case you are someone who hasn’t yet produced a 2,000 percent solution, let me observe based on experience that 2,000 percent solutions appear to be readily available in every area of human endeavor. To find out why, you can read a brief note on this subject in Appendix B.

What improvements should we focus on, then? That’s the subject of this chapter. The answers we found are simple, but profound: Start first by developing organizations (both for profit and nonprofit) that do their work in astonishingly effective ways by using the 2,000 percent solution process. That’s a key direction because most important improvements would have to be accomplished by organizations rather than individuals working alone. Why? Almost all important tasks require the efforts of several people. Also, if people learned how to make the improvements in organizations, that learning would frequently provide the guidance they needed to make enormous progress as individuals. To make the concepts easier to follow, I’ll primarily explore the right combinations of exponential improvements to multiply in for-profit enterprises.

What if you are totally disconnected from all organizations? You might find it valuable to become involved with at least one organization while you are learning how to make improvements. If that’s not possible, think about what improvements you can make that would be helpful to you now and in organizations later.

Conceptual work on a project like the 400 Year Project is always well ahead of the articles and books available to document how to practically accomplish that conceptual work. So let’s take a glimpse at what you’re likely to learn how to do from the project in the future as my writing catches up with my thinking.

Shrink Your Use of Assets:

20 Cubed Equals 8,000 More Cash Flow

People seldom improve

when they have no model but themselves to copy.

— Oliver Goldsmith

My mother used to have another expression that she liked to use to explain why small businesses don’t become bigger ones: As she rubbed her thumb and first two fingers together, she would say, “It takes money.”

What good does it do us to know how to become 400 times more profitable if we cannot afford the expansion needed to create that result?

What’s the solution? I think it’s to improve an organization’s use of its invested money by 20 times. I define that as increasing capital turnover. What’s that? Let me explain.

Capital turnover is a ratio of annual revenue (some people call this sales) dollars divided by how many investment dollars are needed to generate those revenues. Here’s an example: A hypothetical mine requires $16 million to be dug and developed before you can take any ore out of it. While it’s being developed, the capital turnover ratio is zero because you are spending millions and have no revenues (0/16). After development, the mine generates $4 million in ore that is sold each year. The capital turnover would be 0.25 (4/16).

By comparison, a typical distribution operation looks a lot different than a mining operation in its capital turnover. A sales level of $4 million might be supported by as little as $120,000 in capital. The capital turnover of such a business is 33.33 (4.00/0.12). Why does a distribution business need so little capital? If the distribution business operates smoothly, it is paid by its customers before it has to pay its suppliers. The float (a continuing flow of cash received that doesn’t have to be paid out yet) helps offset whatever capital is required for warehouse space and trucks.

Some manufacturers achieve similar levels of efficiency by getting paid up front and keeping working capital and facilities costs at a minimum. Dell Inc. is a good example. That company’s sparing use of cash to generate sales and profits allowed a multibillion-dollar firm to rapidly emerge from Michael Dell’s dorm room at the University of Texas by drawing almost totally on its own cash flow, rather than by adding external capital.

So why is a 2,000 percent solution for using less capital to generate sales a good thing? It means you won’t have to invest any more money than you have already in place to grow to 20 times your current size. Does that sound good?

What’s another benefit? You can use all of the increased 8,000 times greater cash flow to pay off old debts or to reward shareholders and other stakeholders.

What are a few ways to reduce capital needs by 96 percent? Just-in-time use of inventories can shrink your working capital. Streamlining the way you provide your offerings can shrink the time from order to providing the offering and take out even more working capital. Changing your customer terms to require payments in advance can do even more as long as you provide appropriate incentives to customers to do so. Outsourcing of capital-intensive activities can help as well. Redesigning your methods of supplying offerings can also eliminate fixed assets. But the biggest advantages can come from changing your business model to emphasize activities that add lots of value for customers but don’t take much capital.

Lower Your Cost of Capital:

(20)(20)(20)(20) Equals 160,000 More Value

Success covers a multitude of blunders.

— George Bernard Shaw

Surely you don’t want to stop at gaining a mere 8,000 times more benefits. Wouldn’t 160,000 times more benefits be even better?

It’s easy to see an improvement dimension that can be added for another complementary 2,000 percent solution: Let’s reduce the cost of acquiring the initial and subsequent capital for your business or nonprofit organization by at least 96 percent. That solution will vastly increase the rate of return you’ll earn on your capital, expand the amount of capital you have, and stretch how much of the capital you can afford to spend for other purposes.

Here’s an example of how some companies are financed: Many entrepreneurs start up their businesses using personal savings. But along the way, their businesses hit a few bumps in the road, and they run out of money. So the entrepreneurs borrow from friends, family, neighbors, and the mortgage company. Things are fine for a while. Then the companies hit some bigger bumps, and the entrepreneurs need more capital again.

Eyeing the credit card offers that arrive in the mail every day, the entrepreneurs apply for every credit card that crosses the threshold. Most of these initial interest rates are quite low: For transferred balances, the rate may be 0 percent for the first six months.

Then the companies have tiny cash-flow hiccups and are a few weeks late on some credit card payments. The rate of interest on those maxed-out credit cards is immediately adjusted to 26 percent while a 5 percent late fee and a 5 percent overlimit fee are added each month. None of these interest charges and fees is tax-deductible. So every time the owners are late on these credit card payments, the annual charge is going to be over 100 percent a year after tax. If you don’t believe me, just add up those 12 percent charges per month on the increasing balance due for 12 months and see what number you come up with.

As an alternative way to access capital, most such companies fail to consider how they might use customers and suppliers as low-cost investors. Here’s an example: An accounting firm might offer to hold its prices for two years for clients who are willing to pay annual retainers in advance. The accounting firm should do this if it can invest the unused retainer amounts to earn more than the cost of foregone fee increases or to reduce debts that create high interest and fee costs. Why would clients want to do that? Many clients prefer the certainty of keeping expenses under control to the uncertainties of earning what near-term interest rates might provide. 

Companies on a high-growth trajectory have big capital cost challenges as well. They may feel they need such huge amounts of capital at one time that they have no choice but to access money from venture capitalists. What’s the problem? Venture capitalists are looking to make a 45 percent a year return on their investments. Of course, venture capital money works out great if the company flops because the money doesn’t have to be repaid. However, if the company is a huge success beyond anyone’s expectation, the cost of that capital can be even higher than what the credit card companies get paid under adverse circumstances.

What are some choices? Such a company with high-growth potential can work with prospective customers to slash that cost. For instance, the fledgling firm might approach those potential customers who can be most profitable to serve and help the firm gain the most credibility in the marketplace. If the prospects like what they see, the new company could offer preferred access to technology and exclusive purchase contracts in exchange for options to buy stock. Both companies make much more money that way. In addition, if you borrow money in a currency that’s dropping fast enough in value, you have a negative cost of capital. Stay liquid when your equity value temporarily drops, and you can repurchase equity at less than the cost of selling it earlier. The biggest opportunities, however, come in developing the optimal mix of investors. Create an oversupply of eager investors and you’ll see your cost of capital plummet. Choosing a great business model that employs exponentially multiplying 2,000 percent solutions is a great first step in creating such an oversupply of eager investors. Careful investor research and communications development help, too.

On the nonprofit side, donors are sensitive to how much of the money raised goes for program benefits rather than fund-raising and other overhead expenses. Be very efficient in this performance, and the funds you raise will grow much faster as well. Yet many nonprofits operate for decades before giving any thought to how they can acquire low-cost capital to operate and support their activities.

This 160,000 times benefit-improvement level has another significance: Multiply these four (sales increase, cost decrease, asset reduction, and lower cost of capital) complementary 2,000 percent solutions and you have created the equivalent of 400 years of normal improvements (assuming productivity gains of 3 percent a year for 400 years). That’s pretty neat, don’t you think?

Build a Stronger Foundation for Improvements by Rewarding Stakeholders: (20)(20)(20)(20)(20) Equals 3,200,000 More Enterprise-Related Benefits

There is nothing so consoling as to find out

that one’s neighbor’s troubles are at least as great as one’s own.

— George Moore

Now we’re starting to get somewhere: Benefits can be built to millions of times current levels. When that happens, it’s like gaining the benefits of 8,000 years (over 100 lifetimes) worth of normal improvements. I don’t know about you, but that prospect is pretty exciting to me.

What benefits? While there are a number of complementary benefits that can be added, I suggest you now turn your attention to increasing the total benefits received by those who aren’t customers or shareholders (such as end users, suppliers, lenders, distributors, employees, families of employees, and the communities in which you operate) to at least 20 times what shareholders and customers gain. Why? Adding benefits for these people will help you sustain your success longer and give you a better foundation for new generations of 2,000 percent solutions.

Chances are this dimension for possible 2,000 percent solutions is a new subject for you. Let’s develop the concept so it’s clearer. As a first step, consider who else can be helped and what might be done for those other stakeholders.

Organizations affect those who are the end users of their offerings, even when those end users aren’t customers. How can an end user be different from a customer? Here’s an example: hospitals purchase baby formula for newborns to use whose mothers aren’t nursing. The babies are the end users rather than the hospital customer. After moms and babies go home, the supermarket or discount merchandiser will be the customer, but the end user will always be that baby. Provide a better mix of nutrients in the baby formula than anyone else has ever developed, and the babies may gain valuable life-long advantages in physical, mental, and immune-system developments. Those benefits, in turn, can continue to help the whole community for decades. The company will also directly benefit if it becomes known that the babies are thriving better on those nutrients.

Suppliers are impacted by factors such as how much profit they gain from serving an account, the reputation they enjoy because of working with a customer, skills they develop that translate into being applied to other opportunities, the gain in their ownership value from having the customer, and other revenues they are able to garner because of the customer relationship. How could a customer help improve all these dimensions for a supplier? Here’s one idea: A customer might give a supplier an exclusive license on a key patent to make a component that many other firms will need to purchase. The customer will gain better lower costs that way as its component is produced in greater volumes than would otherwise occur.

Lenders can be helped as well. If a company borrower isn’t going to pay off its debt, the lender’s profits and company value are reduced. If the borrower’s success leads to more profits for the lender, the impact can be enormous. Here’s how that might work: A company borrower might want to offer credit to its customers who would have a hard time finding low-cost capital. Rather than only use its own capital and people, the company borrower might do a joint venture with the lender where the lender provides the funds and operates the credit activity. If the lender does this well, it may be able to grasp similar business opportunities with different company borrowers with similar needs. In this way, the borrower’s rapid growth would translate into greater profit and value gains for the lender.

Distributors often connect customers and end users. In countries with fragmented distribution, distribution is critical for end users to obtain what they need. For instance, in a third-world country, advanced-technology products and services will almost always be provided to end users by distributors rather than by the company that develops the technology. Despite this need, many technology companies don’t like to work with distributors (seeing them as an extra cost) and pursue strategies that help drive distributors out of business. A different possibility is to design offerings and pricing so that end users who are served by highly capable distributors will gain greater value from an offering. This approach might mean having lots of end-user education provided by distributors where that education will help create gains in market share. I recently saw an example of this situation involving hip replacement tools in Asia: A great distributor network offering continuing training for surgeons there will help patients enjoy better results while expanding surgical practices. In such a circumstance, the distributor can grow to be larger and more successful by building a stronger and larger foundation of the technology provider’s expansion.

Employees are often left behind in an organization’s thinking about how to add more benefits. An organization that’s going to be amazingly successful could be sure that employees have a chance to become shareholders so that they benefit through ownership in the company’s financial success. There may also be opportunities to turn employees into successful suppliers and distributors where those excellent resources are scarce after helping employees gain relevant skills and knowledge. Further company education programs could be tailored to greatly enhance employee career prospects while enhancing the firm’s ability to prosper in the future.

Families of employees are almost always forgotten when organizations plan to provide more benefits through business model innovation. Many opportunities exist for assisting families such as helping employees have more time to be home, be able to participate through flex time in more family activities, take time off to be with those who are sick, and be filled with the energy needed to be more active family members.

A company may also be in a position to uniquely help a given charity. How could this help the company? Well, a company might offer charitable donations of time, money, and offerings to the nonprofit organizations of a customer’s choice. Properly done, this strategy would increase customer purchases and allow the company to provide even more charitable help.

Local schools might need mentors to help youths select and follow positive paths. Tying in such volunteer work to employees’ career-development plans can be good for everyone. If a company needs young people as employees, this assistance might also lead to attracting more good employees.

And then there are neighbors. All organizations operate in at least one community that could benefit from having active involvement from the organization. For instance, a company could provide volunteers to help local governments write grant proposals to gain access to programs that wouldn’t otherwise be affordable. If the local community is prospering, it’ll be easier to recruit and retain employees who want to work in that area. Word-of-mouth comments about good citizenship will also impress customers and other stakeholders to do more to cooperate with the company.

Encourage Competitors to Copy You to Stimulate Your Innovation: (20)(20)(20)(20)(20)(20) Equals 64,000,000 More Social Benefits

Few things are harder to put up with than

the annoyance of a good example.

— Mark Twain

Isn’t it great that people are such copy cats? This virtually universal instinct can be relied on to help us create another 20 times boost in benefits: an increase in the number of people who apply the same improvements as do the most successful creators of multiple 2,000 percent solutions.

Many people will be aghast at the suggestion. Why make it easier for others to copy you? Isn’t it better to keep your best methods a secret? Well, that’s not always the case.

In many instances, an industry is being held back by the unprofessional way that some competitors operate. Improve the choices for customers, and more people will be willing to buy from an industry. California wines for many years had a deserved reputation as usually being inferior to imports. The typical target end user was a skid-row alcoholic. Wines were made as cheaply as possible to provide a lot of alcohol for the buck. When a few vintners began to emulate fine European wines, they knew they had to employ different practices because growing conditions are different in California. By sharing hard-won knowledge with other California wineries, these vintners began to develop fine wines that eventually won acclaim against European wines and established a huge demand for the best California products.

An unexpected benefit of giving away such valuable knowledge is to light a permanent fire under the company’s own operations to improve. Those added improvements will, in turn, speed industry growth and provide for even more multiplied benefits. In most cases, there’s not much to worry about concerning competitive advantage; organizations will be teaching management processes rather than revealing details of proprietary knowledge that’s unique to its most valuable offerings.

People vary in how good they are at copying. So it may be necessary for thousands of other organizations to attempt to copy the most successful 2,000 percent solution-based organizations before total benefits will expand by another 20 times. That’s no problem: The world is full of organizations that would benefit from working on these solutions.

An organization seeking to deliver 64 million times more benefits will normally want to open its doors wide enough to help others copy what it has done in adding revenue, operating cost reductions, capital turnover improvement, reducing capital costs, benefiting stakeholders other than customers and shareholders, and letting copy cats learn from their success in those dimensions. In many cases, the scale for applying the improvements will be much larger in other industries.

A wise master of these dimensions will probably find opportunities to use this sharing to add still more great customers, suppliers, distributors, partners, employees, and sources of new ideas for the company’s own activities. It may also be possible to create a joint venture with an educational organization to earn a respectable profit from providing this information.

A good way to begin is to seek publicity about the company’s or nonprofit organization’s successes. From there, be sure the information-sharing activity can afford appropriate marketing and educational activities to attract and help those who want to copy.

It’s also a good idea to work on the learning process so that it can be delivered by using 2,000 percent solutions to speed and lower the cost for both the company and those who want to copy. Learning these methods will also be helpful in reducing the costs of getting new employees up-to-speed in the company’s best ways of making progress.

Profit from Solving Large Social Problems:

(20)(20)(20)(20)(20)(20)(20) Equals 1,280,000,000 More Social Benefits

The price of greatness is responsibility.

— Sir Winston Churchill

Isn’t it fun to start thinking about creating over a billion times more benefits? Where shall we look next to gain that result? I know. Let’s poke around among those areas that economists like to complain no one pays any attention to.

What do I mean? Here’s an example: The tragedy of the commons is a problem familiar to economists. Provide something for free to everyone, and the privilege will be abused until the common resource all but disappears. In early New England towns, a central area was left open for general use. These town commons would be grazed down to the dirt by farmers’ cows and sheep until no one could graze livestock there any more. It was hard for the commons to be put to recreational use after the farmers were done with them. A similar problem today is the rapidly shrinking stock of fish in the world’s oceans. Each fisherman makes the most by taking as many fish as possible until there are no fish left of a given species. The fishermen move on to another species, reducing the global food supply as fish stocks remain permanently depressed below what the oceans could support.

Those who study social problems point to air and water pollution, traffic congestion, and overcrowding at free events as examples of the same issue. In studying these problems, scholars are usually quick to point out that while solving these problems has great value for everyone, there’s not enough profit potential to encourage any individual or organization to simply be responsible to the general good.

I have a little secret for you: Those scholars don’t seem to know about 2,000 percent solutions. Centuries of pollution and waste have left the world filled with valuable opportunities to fix what is already a mess. A simple example is that many new mining operations don’t dig up any ore at all; they simply reprocess the piles of tailings left over from earlier ores that were processed for a different mineral.

One of my students in Asia found that his company could make much more money by going to zero emissions than it could by being a polluter. Why? Waste can be turned into something valuable if you focus on the opportunity. What’s more, the same company increases its profits from waste elimination that causes returning river water after processing that’s cleaner than the water it originally pumped into the plant.

Forecasters are predicting great problems because of steadily reducing supplies of clean water, increasing air pollution coming from developing countries, and great expansion of toxic materials into the soils and buildings of poorer countries (such as carcinogenic chemicals, asbestos, and heavy metals). Clearly the social costs of continuing these trends will be enormous in terms of reduced life spans, disease, and medical care.

Despite the gloomy forecasts, 2,000 percent solutions are undoubtedly available. However, such solutions are highly unlikely to be developed by the least effective organizations, minimally educated people, and weakest governments. Chances are quite good, though, that these problems are profitable opportunities in disguise for those with know-how to create 2,000 percent solutions.

Let’s go back to the mine example. Even more profit could have been gained initially if a more effective miner had been processing ore from the beginning to extract more types of minerals and leave less waste in piles. What if the world’s leading companies in ore processing technology added a business activity to provide outsourcing services to mines for processing ore? Such a company could bid for the right to process the ore from mines, install the latest equipment, and operate in ways that would leave the least amount of waste. Soon, the technology company’s size would be more than 20 times larger by adding another line of business that also created enormous social benefits.

Let’s update that idea for containing air pollution in China. Major sources of the pollution in that burgeoning country are power plants burning coal and electrical generators using petroleum. All the soot that goes into the air now could instead be turned into something profitable either by generating more power from the same fuel or turning the waste into something valuable. Pollution control equipment makers could provide an outsourcing business similar to the one I proposed for ore processing equipment makers to profitably reduce pollution. With their capital and know-how, large improvements could follow.

My suggestion is that each organization that wants to create over a billion times more benefits find and operate in ways to profitably reduce the economic costs created by the world’s environmental pollutants by 20 times the value of the organization’s own profits. Figuring out the numbers might require having access to a few specialists to identify costs. As an example, if air pollution was bad enough in a given location, that pollution might be reducing life expectancy by 10 years. Let’s say that the people affected could have earned an extra $100,000 over those 10 years. If 10,000 people live 10 years longer, that improvement would have an economic value of one billion dollars before looking at other benefits such as less need for health care from lung-related ailments. If those same people who live longer are the company’s customers for other offerings, another chance to improve an organization’s profitable growth is provided.

Why is providing this kind of benefit a good idea when you aren’t helping your own customers? Let me explain by beginning with an economist’s argument. If you make a profit by reducing global economic costs by 20 times your current profits, you’ve just expanded the ability of the world’s customers to buy what you offer by that amount. There’s a general increase in purchasing power that benefits everyone. Many people remember that Henry Ford decided to pay his worker’s five dollars a day as wages, well above what he needed to pay to keep his costs down. Mr. Ford did this because he realized that he was better off with employees who could afford to buy the cars they made; if other employers followed through on this example, car consumption would be greatly helped. Likewise, if others follow your example, general purchasing power rises further for you and everyone else.

There’s also a terrific preference for doing business with companies that reduce harmful pollution and solve other expensive social problems. More customers will seek you out as a result. For companies that directly serve consumers, that preference can be enough to turn you into an industry leader.

In addition, such companies have a much greater ability to attract top talent. Many people would like to work as employees for, be partners with, invest in, or be suppliers to those who are making important improvements. Many idealistic young people will be drawn to larger companies only for this reason, knowing that smaller organizations have potentially less impact in dealing with similar kinds of issues.

Naturally, there’s individual self-interest in providing such benefits as well. Do you want to suffer some disease because others have done a poor job of containing harmful materials? I’m sure the answer to that question is no, so it benefits you personally to become involved in creating over a billion times more benefits in these ways.

Make Underutilized People Highly Productive:

(20)(20)(20)(20)(20)(20)(20)(20) Equals 25,600,000,000 More Social Benefits

Poverty is very good in poems but very bad in the house;

very good in maxims and sermons but very bad in practical life.

— Henry Ward Beecher

Most of the world’s people are desperately poor. Their lack of resources leads to permanent problems. Some babies don’t properly develop their brains for lack of a few hundred dollars in nutrients. Lives are ravaged by diseases that are preventable with clean water, inexpensive vaccines, and easy-to-make medicines. Hundreds of millions of people with above-average intellect never receive enough education to develop their minds to anywhere near their full potential. Entrepreneurs capable of leading thousands to economically useful lives lack the investment capital to train and employ those thousands.

What’s the root of the problem? It takes a long time and a lot of investment in people before individuals can earn their keep and support others. Short-change the most valuable parts of that time and investment, and the value of the lost potential is an enormous multiple of the resources that aren’t expended in the near term.

Large organizations won’t, in most cases, be able to think of ways to earn a near-term profit from solving these problems of helping people achieve their potential. Does that mean we are at the end of opportunities to create over 20 billion times more benefits? I don’t think so. Other approaches offer potential.

Research conducted by my students in Africa has shown that there are millions of partially able entrepreneurs who can become leaders in creating enormous economic and social progress. How could this potential be turned into a happy result? By establishing a new type of entrepreneurship — enterprises that will profitably employ hundreds of millions of people who now have few prospects for earning much of a living.

How might organizations in developed countries profitably improve the effectiveness of such entrepreneurs? I can see several possibilities; here are a few choices for helping these entrepreneurs:

• Develop new business models that benefit from employing lots of energetic, but undereducated, entrepreneurs. An example is providing such entrepreneurs with opportunities to directly sell your organization’s offerings. Direct-selling companies like Avon are already having success in this regard. Such business models will be more successful, of course, if inexpensive entrepreneurial education is included.

• Partner with underdeveloped entrepreneurs by providing information, training, capital, and support to the partnership while the entrepreneurs supply their efforts, time, and determination. The most successful of such entrepreneurs could later be hired by companies to develop relationships and partnerships with other underdeveloped entrepreneurs. This business model could be especially attractive in delivering technical services where a local language and awareness of local customs are needed in order to be effective. ServiceMaster, for instance, could partner in this way with underdeveloped entrepreneurs to provide excellent cleaning services for restaurants, hotels, and hospitals.

• Establish business models that turn promising employees in poor countries into business owners. Chains of mom ‘n pop retailers could be operated to provide tryouts for couples to purchase and operate the stores. The resulting chain would be stronger through combining its knowledge, marketing, systems, and purchasing clout.

• Manufacturers could develop modular ways to expand into a country, beginning with simple, labor-intensive components that are expensive to ship. These production modules could be set up and operated by the manufacturer at first until running smoothly. Later, the production units could be sold to people who work in the enterprise and have done a good job of learning how to lead and operate the production. Customer awareness of the company’s efforts to provide local content and ownership would probably assist in selling more of the items in that country.

• Manufacturers could also provide training and licenses to distribute their products in a given country. This approach would be most attractive in sparsely populated locales where distribution is difficult. In the beginning, such networks could be focused on selling the simplest items and providing the least valuable replacement parts. Those who did well could eventually be upgraded into establishing authorized repair centers.

• Transportation companies could set up common carriage warehouses where fledgling entrepreneurs who cannot afford facilities could rent secure spaces for valuable items. These warehouses would then benefit from more transportation business brought to the facility by these entrepreneurs.

• Organizations of all kinds could utilize a policy of emphasizing outsourcing to local entrepreneurs. If nothing else, such a policy would be helpful for those who are educated but don’t know much about running businesses to get their feet wet in entrepreneurial ventures. Here’s an example: Rather than having their own training departments for basic literacy and numeracy skills, companies might hire local teachers to provide such knowledge and experience during evening and weekend classes. Training in various basic technical skills might be hired out to vocational school teachers for other night and weekend classes. Hospitals might provide opportunities for their best nurses to train nurse’s aides in exchange for additional compensation.

There is an enormous multiplier effect of such activities in uplifting lives. First, the number of gainfully employed grows very rapidly. Of course, most of these people will have low-wage jobs, but that’s how economic development usually starts. The holders of those jobs will certainly be better off than before. Second, local purchasing of simple consumer goods expands very rapidly, creating the opportunity for more entrepreneurs to produce and sell those products. Third, you rapidly create a generation of entrepreneurial role models who will inspire others to take this entrepreneurial route. In some underdeveloped countries, it’s very unusual now to have such role models. Instead, teens try to learn to be entrepreneurs from other teens who don’t know any more than they do. Fourth, the expansion in goods creates a need for much more transportation and storage, which expands the easier entrepreneurial opportunities still further. Fifth, by involving educated people as entrepreneurs, you are bound at some point to stimulate the development of low-cost, part-time schools that specialize in preparing entrepreneurs for areas where demand is greatest. For instance, such schools can help reduce enormous shortages of trained leadership and personnel in fields such as plumbing, electrical work, automotive repairs, equipment repairs, and advanced construction. With many more people now earning their livelihoods through trade or manufacturing rather than subsistence farming, larger-scale agriculture can also expand, making it possible to substitute equipment for human work and animal energy. You can expect that the number of people receiving adequate nutrition and education will rapidly increase. Create one successful entrepreneur in a family, and chances are that entrepreneur will find ways to help the rest of the extended family. Make these shifts in ways of doing things across a whole nation, and you reduce the likelihood that during times of drought the country will lack foreign reserves to buy food and medicines. As a result, overall health, knowledge, productivity, and wealth will improve on a sustainable basis. 

Future Frontiers

If all economists were laid end to end,

they would not reach a conclusion.

— George Bernard Shaw

Is that it for expanding benefits? I don’t think so, but I fear that I may have reached the limit of your patience with and interest in multiplying my optimistic thinking into thousands of years worth of normal improvements. If so, I apologize.

For that rare individual who is as or even more optimistic than I am or who wants to become a world hero by making a global breakthrough, I’ve added a few thoughts about where hundreds of billions more benefits might be added. For everyone who has had enough of this subject, please go on now to the next chapter.

As a young man, I once was assigned to look at the relative consumption sensitivities of various items to alternative ways of growing their usage. What I found fascinated me. Let me start with prices. Some items would literally double their sales volume if prices were a mere 10 percent lower. An expensive, new technology would be a typical example. Other items could reduce their prices by 90 percent, and sales would barely budge. Uranium for use in nuclear reactors is an example. You don’t need more uranium unless you have more reactors in operation. Those reactors take a long time to build, and many people are skeptical about the potential benefits.

Take two companies in the same industry, and their offerings’ usage sensitivities to various factors would vary enormously. One firm might improve distribution by 10 percent and gain almost no advantage. Why? The new distribution would come in hotly contested locations where few had heard of the supplier. This situation would be typical of a low-market-share organization. But if the market leader got 10 percent more distribution, the sales and profit expansions could be substantial. Why? For most of the new distribution, the leader would have no competition. That extra 10 percent of distribution might increase sales by as much as 40 percent and profits by over 100 percent. Where you have no competition, prices are generally higher and you don’t have to offer as many discounts, plus you gain all of the volume that is sold. Customers who couldn’t get the items before also see their lives improved.

Where am I going with these examples? If effective organizations choose to create 2,000 percent solutions in the areas where their efforts will have the greatest effect on expanding either revenues or beneficiaries served, many of those 2,000 percent solutions will instead become 3,000, 4,000, 5,000, and 6,000 percent solutions. On such larger revenue or beneficiary bases, it’s easier to create larger percentage improvements in costs, capital turnover, cost of capital, and other sources of exponential benefits. Start multiplying those higher performance levels times one another and you reach hundreds of billions of times in increased benefits with fewer solutions. For example, you reach over 40 billion times increased benefits with six 6,000 percent solutions where it takes eight 2,000 percent solutions to provide 25 billion times of increased benefits. More importantly for the 400 Year Project, it takes only three complementary 6,000 percent solutions to gain 400 years of normal improvements.

The next opportunity is self-evident, but worth repeating: You should create a second 2,000 percent solution in the most highly leveraged areas (such as revenue and beneficiary expansion) rather than always moving next to develop another type of 2,000 percent solution. If you expand volume by 400 times (the result of two 2,000 percent solutions in this area) rather than 20 times, imagine how much easier it will be to accomplish many of the other improvements.

I also believe that the 2,000 percent solution process will eventually be streamlined for those experienced in the process to take less time and be more effective. Before such simplification can occur, the process needs to become better understood by more people who have repeatedly experienced the process. At some point, an experienced practitioner might simply begin by measuring current performance; draw on a standard stock of ideal best practices both for doing the task almost perfectly and for making the change; select the right people and the right incentives; and be into implementation of approaching the ideal best practice quite quickly. Eventually, this way of thinking will be taught in schools as a way of preparing students to solve advanced problems on their own. That would be the perfect culminating course for the last term of high school when youngsters are looking for ways to step up to adult challenges and privileges. With that background, exponential advances will roll forward rapidly and inexorably.

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Are you feeling more confident about making 400 years of normal progress in only 20 years? I hope so. It’s not that difficult a goal if enough people are sincerely interested in accomplishing more with our God-given potential. The key to this rapid progress is that no new knowledge or technologies need be developed. You just need to make better use of the time and resources you already have. 

Copyright © 2007. 2012 by Donald Mitchell.