The Power of the S-Curve

Harry S. Dent | Monday, November 19, 2012 >>


One of the best-selling books in recent years has been Malcolm Gladwell’s The Tipping Point. We applaud this book for its breakthrough insights and simplicity, and especially for how it addressed a simple insight we have had since the late 1980s. An insight we’ve discussed in many of our books, including Our Power to Predict (1989), The Great Boom Ahead (1993), The Roaring 2000s (1998) and our more recent books, The Great Depression Ahead (2008) and The Great Crash Ahead (2011).

We have called that principle the S-Curve and it represents how real people react to and ultimately adopt new technological, social, cultural and political innovations.

Basically, it all starts with “outliers”…

The “outliers,” as Gladwell calls them in his latest successful book, represent the very few people who focus on a new body of research or knowledge. By few I mean the 0.01% to 1%. This minority masters their area of expertise over 10,000 hours of concentrated immersion and only then do they come up with breakthrough new insights.

(Incidentally, that’s about what it took me in my research to come up with my breakthrough insights in economics in the 1980s.)

Our research shows that this is why that 1% of the population tends to dominate 30% to 50% of the wealth over time, and currently around 45%. They are the real entrepreneurs and innovators. And they are the ones who start new trends and S-Curves.

Then, once these innovators have sparked the S-Curve into life by introducing their breakthrough, the product or technology begins to filter into niche markets where the top 10% are more open to change and quicker to react.

From there, it goes viral, flooding the market until 90% of the population has adopted the innovation. Typically, saturation is reached in about the same amount of time as it took to reach the 10% tipping point.

It looks like this…

See larger image

This is crucial so I’ll say it again: you get nine times the adoption in the same time, albeit at lower prices.

Why is this so important?

Because it makes such trends predictable. Cars, electricity, radios, TVs, mobile phones, the Internet, digital cameras… all are examples of innovations that predictably followed the S-Curve.

Smart phones and high-definition TVs are half way up the S-Curve and will peak near the end of the decade.

Global Positioning Systems only recently blew past the tipping point…

All of these technologies and innovations offer investors opportunities to make windfall gains as they go viral or as they continue their exponential march toward saturation.

Yet most businesses and investors miss such trends… and thus the opportunities. They assume that mass adoption is more linear, not exponential. That it will take decades for a new innovation or technology to infiltrate the main stream.

Even companies as big as Firestone Tire miss it…

Back in 1979, when I still worked at Bain and Company as a consultant, radial tires had blown through an S-curve thanks to Michelin’s innovations in France.

And U.S. companies just did not see it. It took seven years for radial tires to penetrate niche markets in the U.S.

But, once they did, it took just seven more years to hit the 90% saturation point.

If I hadn’t recognized the power of the S-Curve and had been consulting for another company, Firestone would have missed that boat.

It had projected that it would take seven years for radial tires to grab 20% of the market after taking 10% in the previous seven years – a linear projection. That’s 70% less than what actually happened.

That’s 70% market share they would have missed out on because they didn’t see the predictable trend unfolding right in front of them.

Lucky for Firestone, we at Bain convinced it to quickly close bias tire plants and to convert to radials. That conversion may be the only reason Firestone still exists today at all.

So do yourself and your investment portfolio and business a favor. Don’t make the same mistake. See your life, technologies and your company’s products and services as progressive and predictable: S-Curve cycles with exponential potential once they move past 10% penetration!

After all, everything in life is exponential, whether it’s moving up or down. Linear growth is an illusion we humans naturally favor, but it kills many businesses, investments and life strategies. Don’t let that happen to you.

Harry

 

 

Ahead of the Curve with Adam O’Dell

Advance Decline Ratio Says the Market Correction is Over

The market came roaring back today. After a peak-to-trough correction of 8.9% in the S&P 500, the worst appears to be over.

 

 

Categories: Economy

About Author

Harry studied economics in college in the ’70s, but found it vague and inconclusive. He became so disillusioned by the state of the profession that he turned his back on it. Instead, he threw himself into the burgeoning New Science of Finance, which married economic research and market research and encompassed identifying and studying demographic trends, business cycles, consumers’ purchasing power and many, many other trends that empowered him to forecast economic and market changes.