1. “The difference between the best worker on computer hardware and the average may be 2 to 1, if you’re lucky. With automobiles, maybe 2 to 1. But in software, it’s at least 25 to 1. The difference between the average programmer and a great one is at least that. The secret of my success is that we have gone to exceptional lengths to hire the best people in the world. And when you’re in a field where the dynamic range is 25 to 1, boy, does it pay off.” [1995]

“The problem is, in hardware you can’t build a computer that’s twice as good as anyone else’s anymore. Too many people know how to do it. You’re lucky if you can do one that’s one and a third times better, or one and a half times better… Then it’s only six months before everybody else catches up. But you can do it in software. As a matter of fact, I think that the leap that we’ve made is at least five years ahead of anybody.” [1994] This phenomena described by Steve Jobs, when combined with supply-side economies-of-scale and demand-side economies-of-scale, creates a lollapalooza. The existence of lollapaloozas in an environment where scaling happens digitally over networks means that digital businesses are nonlinear in terms of its outcomes. This point is so fundamental to any digital business today that the Jobs quotes above must come first in my list. Once the offering of a business is digital, even small advantages tend to lead to a “few winners-take-most-all” result.

The power law distributions that exist in business flow from this “few winners-take-most-all” phenomenon. The great wealth of a tiny number of technology business founders is one outcome of this phenomenon. As another example, both (1) the power law distribution inside a venture capital firm’s portfolio and (2) the power law distribution of financial returns between venture capitalists, are driven by digital businesses being part ofExtremistan. That financial outcomes tend to produce an unequal distribution of income is not a new phenomenon. The rich get richer phenomenon is at least as old recorded history. What is new is that digital systems are an accelerant of the Matthew effect (rich get richer) phenomenon. (more…)