I recently posted a podcast episode with Balaji Srinivasan. He talked about a number of thought-provoking concepts. One in particular which seems to have garnered attention from listeners is what Balaji referred to as the “Larry Page Dictum”. The idea is that, in terms of technological improvements, 10x can sometimes be easier than 10%. Balaji describes how changing paradigms can open opportunities for 10x improvements whereas incremental 10% improvements often become increasingly difficult to achieve and have certain limits.
Below is an excerpt from a 2013 interview in which Page describes why he encourages employees to go after paradigmatic 10x improvements instead of incremental 10% improvements.
Wired: Google is known for encouraging its employees to tackle ambitious challenges and make big bets. Why is that so important?
Larry Page: I worry that something has gone seriously wrong with the way we run companies. If you read the media coverage of our company, or of the technology industry in general, it’s always about the competition. The stories are written as if they are covering a sporting event. But it’s hard to find actual examples of really amazing things that happened solely due to competition. How exciting is it to come to work if the best you can do is trounce some other company that does roughly the same thing? That’s why most companies decay slowly over time. They tend to do approximately what they did before, with a few minor changes. It’s natural for people to want to work on things that they know aren’t going to fail. But incremental improvement is guaranteed to be obsolete over time. Especially in technology, where you know there’s going to be non-incremental change. So a big part of my job is to get people focused on things that are not just incremental. Take Gmail. When we released that, we were a search company—it was a leap for us to put out an email product, let alone one that gave users 100 times as much storage as they could get anywhere else. That is not something that would have happened naturally if we had been focusing on incremental improvements.
Larry Page is not the only billionaire technology entrepreneur who believes competition is overrated and 10x improvements are critical. In his book, Zero to One, Peter Thiel famously stated “competition is for losers“. He argues that all successful companies are monopolies and that the strongest characteristic of a monopoly is proprietary technology which is at least 10x better than the next best alternative. Thiel and Page also agree on the idea that companies are doomed to decay (in Page’s words) and die (in Thiel’s) the moment they stop inventing in favor of making incremental improvements on what has worked for them in the past.
Jeff Bezos’ company sits right above Page’s on the list of the 5 highest valued companies in the world. Like Page and Thiel, he too emphasizes the importance of going after 10x technologies. Bezos has said that “you cannot invent without experimenting” and that experimental failure is “the kind of failure you should be happy with.” He wrote in last year’s shareholder letter that “if the size of your failures isn’t growing, you’re not going to be inventing at a size that can actually move the needle.” Below is an excerpt from a previous shareholder letter he wrote in 2015 describing his logic for making extremely ambitious bets.
Jeff Bezos: Outsized returns often come from betting against conventional wisdom, and conventional wisdom is usually right. Given a ten percent change of a 100 times payoff, you should take that bet every time. But you’re still going to be wrong nine times out of ten….The difference between baseball and business, however, is baseball has a truncated outcome distribution. When you swing, no matter how well you connect with the ball, the most runs you can get is four. In business, every once in a while, when you step up to the plate you can score 1,000 runs. This long-tailed distribution of returns is why it’s important to be bold. Big winners pay for so many experiments.
Page, Thiel, and Bezos all appreciate the need-to-have nature of 10x improvements for any company that seeks to sustain lasting success as one of the most valuable organizations in the world. They tolerate strikeouts and encourage swinging for the fences. Without Google +, Fire Phone, or Thiel’s failed venture bets, you don’t get Gmail, Kindle, and SpaceX. It is no coincidence that Google created the home for moonshots and Bezos and Thiel bet more literally on shooting for the moon. These insanely successful founders owe much of their successes to their independent thinking and contrarianism and yet they have all come to the same conclusion on at least one thing. 10% improvements are the recipes for failure while 10x technologies are the keys to success.