The Power of Power Laws (WWI 12)

“You’ve (Likely) Been Playing The Game of Life Wrong”

This was the confronting title of a video I saw last week.

And maybe they were right. Maybe my overconfident, 21-year-old, just-out-of-puberty little head hasn’t figured out the big game of life after all. Shocking stuff, I know.

And while this video unfortunately didn’t give me all the answers, it certainly gave me a new look at how to play this game of life better.

Let’s get into it!

Yes, welcome to Wessel’s Weekly Insights. Your favourite LinkedIn series (that now also is a newsletter/blog… subscribe here😉), written a little too overconfident because the classical music I listened to this morning made me feel 10x smarter than I really am.

Let’s rock with it though, because today we are talking about a ‘smart’ subject.

A subject with a little too much math for my liking. But don’t worry, I won’t — and can’t — reproduce all the formulas I saw in the video. So, we’ll get through it with a few oversimplified metaphors and some common sense. Sounds doable, right?

(The actually smart stuff can be found in the video here)

Let’s talk: Power laws.

A power law is a functional relationship between two quantities, where a relative change in one quantity results in a relative change in the other quantity proportional to the change raised to a constant exponent: one quantity varies as a power of another.

Get it?

Me neither.

So, let’s make it a little game.

We’re going to flip a coin. You pay €1 to play. If the coin lands on tails, you lose the €1 and the game stops. If the coin lands on heads, your €1 gets doubled and the game continues. Meaning we will flip the coin again, and if the coin lands on heads again, your €1 (now €2) doubles to €4. And this continues. Every time the coin lands on heads your money doubles, if it lands tails, the game stops.

Would you play this game for €1?

What about €1.000.000?

Math says you should, because the upside is unlimited and the downside is only €1.000.000. If you truly had unlimited tries in this game, you would always make a profit, no matter how much you’d need to pay to play it every time.

One try where you get extremely (extremely) lucky would cover all the tries where you lost money.

We see the power law in action all around us.

• We see it in venture funds: only a few per cent of their investments are extremely profitable, and those investments make up for all the losses on the others.
• We see it online: only a few of the videos get 99% of the views.
• And we even see it in the trains: 99% of people seem to take the same train as you, while the rest of the trains are almost empty…😑

The power law is literally everywhere, so how can we use it to our advantage? How can we play this game of life better? How can we find (extraordinary) success in the realms of human endeavour?

Well, it’s simple. Do these things (in no particular order).

1. Stop playing it safe

Are you currently playing in a realm ruled by a power law? Most people aren’t.

Most people are stuck playing a linear game. They work an hour, they get paid an hour. Which is easy and reliable, but the upside is very limited. In a realm where power laws rule, your upside is unlimited, so the more you try, the more you will get.

Just like the coin game, play it once and you have 50% chance of just losing your €1. Play it 100 times and mathematically 50% of your wins will already make up for 50% of your losses, and everything you get more than that (by flipping several heads in a row) is extra.

The downside is limited (to €1), the upside is unlimited (you could get millions in one round if you get extremely lucky). Things that follow power laws only get bigger on average the more you measure/try them.

And I know I am rambling here, but I really want you to understand how powerful this is. I just simulated 1.000.000 rounds of this game. The biggest streak I got was 21 heads in a row, the payout: €2.097.152!

Yes, in one round, I turned €1 into €2.097.152 (that’s a return of 209715200%)! This round alone would pay double my total cost for a million games. Even if I lost the other 999.999 of my million games, I would still have (more than) doubled my stake.🤯

You can’t get this lucky in a linear game. (e.g. €1 will turn into €2, or 1 hour of work will turn into €30), so decide what game you want to play. One that is less risky and more reliable, or one that’s riskier but more rewarding (in the long term).

2. Identify the realms where power laws rule

I already told you that power laws are all around you. But they’re not everywhere. As mentioned above, employees rarely profit from power laws. They at least need some sort of leverage above/as their wage (e.g (outcome-based) commissions, equity, etc.).

Power laws can only exist when someone has leverage. Meaning their outcome is not directly correlated to the work/things they do.

E.g. this blog could blow up and inspire and educate millions of people, but it could also just reach you, the reader of this blog right now. This outcome has nothing to do with the effort I put in, all the research, the writing, the time. It doesn’t say anything about how many people I will reach. And that’s fine.

I am happy that at least you are here…😇 And I know that every post I write is another piece of leverage. Another piece where I sharpen my skills, another piece that has the potential to shape and impact someone’s life in a positive way. And then one day I may get ‘lucky’, hit the content jackpot and go viral. Not because it was that piece was better than the others, but because I already lost 999.999 times and I chose to play a game ruled by a power law.

Every post is just another coin flip. (And I of course my content will get better in the progress, giving me better odds)

3. The #1 power law power-up

The power law alone is powerful, but paired with the other eight world wonder (of course talking about compounding) it becomes unstoppable. Here is how you combine the two.

The decision to play a game of power laws instead of linear game is one thing, but if you want to maximalise your outcome make sure you keep (partly) building on the things you already did.

For example: let’s say you ran an advertising agency for plumbers, here is how you would best leverage when searching for new opportunities.

• Skills: leverage your existing advertising skills, but now niche towards a new target group like gardeners for example.
• Audience: leverage your existing audience and sell them something else. Maybe your existing plumber audience also needs/wants a tool that helps them create and send invoices faster.
• Experience: leverage your experience as a advertising agency owner and make content on how to start and run an advertising agency.
• Etc.

Now in short — to make this even more tactical — here is how I will be implementing these power(ful) laws into my life.

How I am implementing this:

What I am doing

1. I chose a game to play where power laws rule

Yep, as you are seeing right now I started playing the content game. A game that is known for it’s disproportionate and partly random distribution. Not the most reliable option, but the one with the most leverage long term.

2. I chose to build a (niche) audience

I am not writing for everyone. I write in a certain tone of voice, with certain interests that are coming back. Partly because this feels better to me, but also because if I keep writing for different audiences, different audience will come, others will go. Which is not really a compounding growth strategy.

What I will be doing

1. Building and trying in public

I will be experimenting with different projects and content within this niche. Not everything will do well, but because everything is somehow catered towards the same target group, my audience will still compound (I hope/think).

2. Launching imperfectly

I am quite a perfectionist, but I will (try to) start launching things imperfectly. Experiments should be experiments, not full blown companies. (It would be a pity if I only found out no one is even interested in my app when I already hired 4 full time developers and invested millions of euros into the infrastructure). By keeping my experiments as small as possible, and iterating quickly, I get more coin flips in less time.

That’s it, thanks for sticking with me for this whole read. I hope you found it valuable, and if you did(n’t) feel free to let me know. See ya!