Have you ever had an idea with the potential to change your organization, your city, or even the world? How can you give it the best chance to succeed?
In The Voltage Effect, economist and professor John A. List offers his advice for how to take things from the small scale to the big stage. Whether you’re an entrepreneur, an activist, or anyone else with a brilliant idea, you can make use of his scaling strategies.
Keep reading to find out how to help your idea succeed over time.
List recommends a few scaling strategies to help give your idea its best chance to succeed: Set the right incentives, avoid the sunk cost fallacy, build a positive organizational culture, and embrace accountability.
#1: Incentivize to Win
List’s first strategy for successful scaling is setting the right incentives to motivate your team. List argues that incentives are a more effective focus than leadership style or personality when it comes to managing your workforce at scale. It’s better to focus on incentives than leadership style because as we’ve learned, talented individuals don’t scale, making it impossible to replicate the unique qualities of gifted leaders across your organization. However, incentives are much more easily scaled as blanket policies across your organization.
List recommends taking advantage of loss aversion when setting incentives. According to List, people are generally more motivated by their fear of loss than by their desire to gain. To take advantage of this element of human nature, pay out performance bonuses for a given period of time before the period begins, letting employees know that they’ll have to repay the bonus if they don’t hit their targets. When employees get the incentive up front, they’ll be more motivated to work hard to keep it, thanks to loss aversion.
According to List, social incentives can also be powerful motivational tools. As we learned when discussing List’s red flags for scaling, workplace social dynamics can impact performance. Social incentives make use of the interpersonal factors that motivate your employees. Specifically, List notes that people tend to work harder when they know that their performance is being monitored, in a phenomenon known as the Hawthorne effect. By letting your employees know that you’re tracking their performance, giving them clear targets, and offering them encouragement, you can take advantage of the Hawthorne effect to get the best out of your workforce.
#2: Avoid the Sunk Cost Fallacy
In addition to offering the right incentives, as you scale your ideas up, List advises that you take steps to avoid succumbing to the sunk cost fallacy. The sunk cost fallacy is the human tendency to invest additional time and resources into failing projects in an attempt to salvage resources that have already been invested in the project. In these situations, you should pull out of the failing project, as doing so minimizes your losses and maximizes the time and resources you’ll be able to invest in more fruitful projects.
Don’t Be Afraid to Give Up
List offers a strategy for avoiding the sunk cost fallacy: Give up. To prioritize your best ideas, you need to recognize when an idea isn’t scaling and give up on that idea as quickly as possible. When you’re able to quickly give up on failing ideas, you minimize your losses and free up resources so that you can successfully pivot to another project.
When you think it might be time to give up on an idea, List recommends that you consider alternative ways you could spend your time and resources. If there are other ideas or features that seem more lucrative, exciting, or scalable, it’s probably time to give up and move on.
Identify Diminishing Returns
List notes that ideas that aren’t scaling properly often suffer from diminishing returns. Diminishing returns are a phenomenon in which profit margins per unit decrease as production scales up. As we learned when discussing runaway costs, for an idea to scale successfully, cost per unit needs to decrease as the business scales.
To identify diminishing returns, you need to interpret your data correctly. List notes that many organizations fail to identify diminishing returns because they focus on the wrong metrics—for instance, on the average profit per unit. Instead of focusing on your average profit margin, List recommends that you calculate the profit margin on the most recent unit sold. If it’s lower than your average margin, you may be experiencing diminishing returns. If this is the case, it may be time to give up.
#3: Build Teamwork and Diversity Into Your Culture
Lastly, List argues that you should focus on building a sustainable culture while you scale your ideas. Specifically, List writes that cultures that embrace collaboration and diversity do well at scale.
As your organization grows, collaboration becomes increasingly important. When an organization is in its infancy, the drive, talent, and ideas of one or two individuals may be enough to propel it forward. However, as we know, talented individuals don’t scale. Instead, as your organization grows, its success will depend on clear and efficient communication within a larger group of employees.
To incentivize teamwork, List suggests assigning each employee to multiple teams, which will help ensure that ideas are shared across your organization and help employees invest in the success of the organization as a whole.
Along with collaboration, diversity helps organizations to succeed at scale. Diversity enables your organization to solve problems creatively, as individuals from a variety of backgrounds will naturally bring a variety of perspectives, ideas, and problem-solving tools to their work.
List argues that you must demonstrate a real commitment to diversity to recruit a diverse workforce. Specifically, List notes that diversity statements fail to attract many candidates when they’re not paired with policy and action. However, when organizations commit to hiring candidates from minority groups and simultaneously commit to treating employees well and fairly regardless of their backgrounds, word gets around, which leads more strong minority candidates to apply.
#4: Be Accountable
List notes that, even as you try to build a positive culture that embraces collaboration and diversity, you will sometimes make mistakes. When these things happen, List stresses that the best thing for your organization is for you to take responsibility for your actions and offer an apology.
When offering an apology, note that money speaks louder than words. For example, if some of your employees feel they’ve been underpaid or mistreated on the basis of their race or gender, they’ll probably respond more positively to an apology that includes a wage increase than to an apology without financial compensation.
However, don’t be too quick to apologize, especially in situations that are likely to recur. Apologizing too frequently lowers the value of each additional apology, especially if you’re unable to fix the issue you’re apologizing for.
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Here's what you'll find in our full The Voltage Effect summary:
- How to take ideas from the small scale to the big stage
- The red flags that signal you may have trouble scaling up
- Strategies designed to increase your idea’s chances of success