System Thinking and Exponential Growth applied to Startups

How does one think about a startup as a system? This previous article talks about importance of exponential growth and the importance of understanding inputs and the bottlenecks of a system. The key inputs to a startup are being able to produce a product and distributing it to customers. To produce a product, a company needs to hire the corresponding employees and build any infrastructure necessary to build the product; i.e. manufacturing. Furthermore, a company needs capital to hire these people. Distribution strategies can range from virality to marketing or sales people. These strategies also require capital.

Let’s analyze how this effects certain industries. The software industry is very desirable because it has low variable costs. Once it starts being successful, it doesn’t have to be worried about being bottleneck by hiring an exponential increasing number of software engineers (although some startups choose to do so to further increase their lead) or whatever production costs. Certain industries such as cars are bottlenecked by production as it is hard to exponentially improve it. If the distribution channel is actually viral, then the startup will not be bottlenecked by distribution. Furthermore, the shorter the payback period for a channel such as paid marketing and sales, the less bottlenecked the company will be by distribution.