Darwinian company growth doesn’t always select the best companies


“Survival of the fittest” is not the same thing as “survival of the best,” though not apparent at first glance.

“Fittest” means “most able to become a grandparent.” Sound weird? You might think “fittest” means “most able to create offspring,” but that’s not true if the offspring themselves are unable to continue the process of reproduction. A horse mated with a donkey creates a mule which is sterile; the parents in this case cannot become grandparents, and thus is an evolutionary dead-end.

The “grandparent” requirement is the only requirement, which means bad things can be “fit” just as well as good things. Viruses are amazingly fit — not only becoming grandparents, but doing so at prodigious rates which make them quick to spread and difficult to stop once noticeably numerous.

That last bit should sound familiar if you follow theories of Startup Laws & Metrics. Investors and founders alike have been obsessed about “growth at all costs,” just as a virus colony grows without care to its effect on its host cells or whether the colony’s growth ends up destroying the host body completely, taking the colony down with it in a viral version of Lord of the Flies. Similarly, we hold up “viral growth” as the best sort of growth, because exponential curves overwhelm all others, thus once the mechanism is stable and the company gets large enough to be noticed, it’s neigh-impossible for competitors to catch up.

There’s nothing inherently wrong with obsessing over growth; in fact, using the same argument you can point out that in winner-take-all markets, growth is objectively the main objective.

The problem is “growth at all costs.” When “growth rate” becomes the only important metric for company “fitness,” other metrics are left unsolved.

“Profitability” is perhaps the most-talked-about example of a metric left unsolved. Many companies who won the growth battle never figure out how to convert themselves from a virus to a business. Some already passed into the zone of “can never be profitable unless something drastically changes,” (e.g. GroupOn, Zynga, SoundCloud), whereas many are able to continue due to massive investment, and the jury remains out on whether they can ever produce profits (e.g. SnapChat, Pinterest, WeWork, InstaCart, Square, FourSquare, and even Twitter, who has impressive revenue but has still never been profitable). Presumably, some will and some won’t ever figure out a business model, but the point is that their position as “winners of the market” is due to being an excellent virus in a Darwinian sense, not due to possessing an excellent business model.

“Betterment of humanity” is an even less-talked-about example of a metric left unsolved. Libertarians might not care whether a company earns a profit by making the world a little bit better or extracts a toll by making it a little bit worse. But it seems to me that it’s our duty as entrepreneurs to create companies which leave the world better than we found it, or at least not make it worse, and our duty as employees to invest the majority of our waking hours and the most productive years of our lives in companies that make the world better, not just “hit a number.”

Many of the market-winners do make the world better. Despite famous setbacks, advances in biotech over the past few decades have resulted in longer and better quality of life. The success of WordPress world-wide (25% of all domains) makes it orders of magnitude cheaper to completely own your website, without which you are invisible and voiceless. Amazon’s cloud computing services enable the creation of technical products and services which would be impossible to create a decade ago, both for new startups and 100-year-old companies still reinventing themselves into relevancy.

But many of the winners are a mixed bag. Uber makes entrepreneurs out of under-paid employees who were indentured slaves to the medallion system, but perhaps they are still indentured and still under-paid. Twitter connects people and ideas but kills attention spans. Google puts the world’s information at our fingertips but destroys personal privacy in ways more insidious than most people desire to understand. Self-driving cars will solve traffic, dramatically improve the environment, provide transportation for people who can’t or shouldn’t drive a car, and could even transform the landscape as parking lots and garages being obsolete; they will also destroy millions of jobs in the transportation industry, many of them high salaried relative to the job-holders’ level of institutional education.

Darwinian growth wins by definition; there’s no arguing that, no use crying about it, and government regulation will only delay the inevitable while shifting the location of the winners to other countries.

It’s up to we entrepreneurs and employees both, to ask whether growth is sufficient. Whether we stop at growth metrics or whether we accept additional objectives. Whether our companies will uphold other values as being inalienable and unassailable, allowing those additional values to drive our most important decisions, and asking growth to be compatible with those values.

The real question is not how to retard growth in submission to other values, but rather how to use our insistence on other values to drive growth.

Small: Buffer is a 5-year old company with profits and growth, in the overcrowded space of “Social Media Tools,” with a product that’s not particularly special or unique (sorry guys, love you but it’s true!), where talent nevertheless beats their door down to work there even in cases where they know ahead of time they’ll take a pay-cut (because salaries are set by a formula). This is not because Buffer’s product is “changing the world” but because of the company’s devotion to complete transparency and positivity, being honest about struggles and successes, and of employees’ health and well-being. This is growth driven by values.

Mid-Sized: TOMS shoes is a massive success, not because of a superior product, but because of a viral story that people want to support and retell, exactly because its mission is so commendable and pure. This is growth driven by values.

Large: USAA with $24 billion in annual revenue and $3 billion in profits is the 49th most valuable company on Earth. Their customer service consistently earns NPS between 75 and 80 — some of the highest scores in the world — so their financial health is matched by customers who truly want the product. USAA is well-known for being one of the best places to work, even in traditionally low-paying, low-formal-education positions such as customer service, and for their overwhelming and unwavering commitment to families of the US Armed Forces. This is growth and profit driven by values.

Building a virulent company is wonderful, but only if the virus carries beneficial effects — creating customers who love the service, creating employees who enjoy spending most of their waking hours at work, and creating effects to our economies, communities, and societies that are net-positive.

So when you build your unstoppable company, make sure you’re bringing something worthwhile along with you.

8 responses to “Darwinian company growth doesn’t always select the best companies”

  1. So, Uber drivers are underpaid, but self-driving cars are bad because they will eliminate the jobs of well-compensated drivers? Also, “fittest” does not equal “best”, but the example companies are thriving because they are good?

    Values are subjective, and cherry-picking good vs. evil attributes of successful companies does not show that evil triumphs over good, or vice versa, whichever you’re trying to show. Just because the market values some things that you disagree with doesn’t mean that it’s wrong.

    • I think the point is that companies who don’t consider benefiting society as a metric are being short sighted and potentially harmful. For example, the publishing industry has traditionally considered it a responsibility to make classics and new works available–not at a loss, but with, potentially, a lower profit margin than best sellers. When publishers are bought by larger conglomerates, the new owners typically cut the lower margin lines (new works and classics) and focus on the best sellers. They make a bigger margin, but Society in general is diminished. The same can be said about auto/oil/tire companies who bought up public transportation systems and dismantled them so that people would have to buy cars. They profited, but at the expense of our country.

      • Funny you should use books as an example; I just downloaded “Crime and Punishment” to my phone for free. I am skeptical that your other example actually happened; if it did it’s probably a little more complicated than that. Last I checked public transportation wasn’t on the wane.

        In general the complaint about companies buying competitors and shutting them down doesn’t really make any sense; if there were demand for it why would they shut it down now that they own it? If there were potential for it down the road to exceed present profits why would the original owners have sold out? You’re relying on companies acting in a basically irrational way to fit your argument.

        Companies are responding to the market’s values. And increasing their margins is not a bad thing; it leaves room for reinvestment and expansion of what people are asking for. That strikes me as “good”.

        • Public trans case: https://casetext.com/case/united-states-v-national-city-lines-4 When I studied it in US History, back in the 70’s it was taught as factual. Now, on the web, you can find many site’s treating it as a myth. However, there were convictions, and those weren’t mythical. The publishing thing was mostly happening in the corporate raider days of the 1980’s. I remember it, but don’t have documentation at hand. I think you may be overoptimistic about the “goodness” of markets, especially if they are unregulated. Under our current culture (which seems to be changing, I hope), companies are incentivized to provide as little value as possible at the maximum possible profit. My observation, over years in corporate america, is that at some point, in the 70’s or 80’s focused shifted away from providing value to maximizing shareholder investment, regardless of the consequences. Here’s a link to an interesting white paper https://www.gmo.com/docs/default-source/research-and-commentary/strategies/asset-allocation/the-world's-dumbest-idea.pdf

          • “Conspiracy to monopolize” is still a few steps away from demonstrating customer harm; like I say public transportation seems to have survived. And when I went to college in the 90s I bought Dover Thrift editions of the classics for $1 each.

            I’m not promoting the market’s “goodness”; I’m asserting the primacy of the people’s preferences over those of a small elite, particularly when the latter’s values are self-contradictory (as in this article). Regulation adds overhead which may not reflect the market’s values, retards innovation, and in fact strengthens monopolies.

            Stating that customer value should take precedence over shareholder value is simply begging the question, as the former will clearly lead to the latter. If the gap between the two is sufficiently large then the company will not survive for long short of owning a monopoly. And no monopoly will long endure without government regulation running interference on potential competitors.

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