The Mathew Effect

The easiest way to achieve success with your business, or your career, is to make the most of what you have.

In 1968, sociologist Robert Merton wrote a paper which described how the more eminent scientist in a group tends to get the most credit for the group’s work, regardless of who did the work. He called this the Principle of Cumulative Advantage. This was mostly notably proven perhaps when Jocelyn Bell Burnell discovered the pulsar in 1967 and her PhD supervisor got the Nobel Prize for the discovery, she didn’t – at the time being a women probably didn’t help either. Another way of looking at this is that “the rich get richer and the poor get poorer.”

The Principle of Cumulative Advantage, sometimes known as The Mathew Effect, from a line in Mathew’s Gospel, lies at the heart of many large social problems. It’s what creates income inequality growth, corruption growth, centralization of power growth, and hardening of class stratification. But it is very relevant to business too, as both individuals and businesses seek to maximize their competitive advantage, as they strive for success, and this often comes from the accumulation of advantages. If you don’t protect your competitive advantage you will fade away; that is why it is vital to not only understand the source of your competitive advantage, but to actively work to build and reinforce it, in fact, it should be your primary strategic goal if you really want to create a successful business. If you are running a business and don’t know what I am going on about you have a choice: get some help; or, get lucky.

So, if your dad is one of the most successful hedge fund managers of his generation, isn’t it obvious that you should join the family firm? Well, Brett Icahn did that and now his dad has rewarded him and his partner with a $3Bn fund to play with and it will be interesting to see what they do with it. There is no doubt that Brett is building on some pretty strong advantages in this business and he is likely to be relatively more successful than if he had become a doctor, say, but when this sort of hereditary privilege is used to gain advantage things can go horribly wrong as not all son’s have the drive, intellect, personal skills and timing that their father’s did.

Timing is always important when you want to grow. Brett is playing on a very different playing field than his father did when he got started. It isn’t just coincidence that most 19th century steel magnates were born within a few years of each other, as were internet and software pioneers alike, and even Russian oligarchs for that matter: it is technological and social innovation, often intertwined, that creates narrow time windows of opportunity for entrepreneurial spirits like these. The same is probably true for hedge fund bods, like Carl Icahn, as the hedge fund industry is much harder to enter today than it was in 1968 when Carl, along with many other notable industry names, got started.

So, all this is by way of an introduction to my main theme: exactly what cumulative advantages do you, or your business, have to build on? Are you in fact making the most of them? If not, why not? While it seems like a no-brainer for Brett to try his hand at hedge funds, it is often more difficult for smaller business owners to work out where their competitive advantage comes from and exactly what they have to do to protect and develop it. It is hard, but unless you have some of Brett’s advantages, you might want to put your mind to it as it could help you become much more successful.

One of my five foundations to a successful business is “to stay different” and this requires a very clear understanding of the basis of your competitive advantage, so that you can make the right strategic choices and position yourself in the market to best effect. All great businesses do this very well, although I’m not always convinced that even they know why.

 

Mark

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