The Transformational Phase Is Key

Study any exponential technology and you will see similar patterns. Sometimes a simple glance at stock prices tells the story. Figure 6 reveals the exponential growth of electric vehicles.

Electric vehicles were under development for decades, with little adoption outside circles of enthusiasts. The success of Tesla’s Model S and the Nissan LEAF marked the beginning of the transformational phase around 2012. But traditional automakers didn’t begin mounting a serious response until Tesla Model 3 sales accelerated in early 2020—when the abundance phase arrived. In 2021 General Motors announced a plan to transition to all-electric vehicles by 2035, a move it should have made five years earlier during the transformational phase. Now it will try to catch up to Tesla, Revel, and a dozen other startups.

I could continue with additional examples of exponential technologies such as microprocessors, DNA sequencing, and Bitcoin. But in all of these examples, the message is the same. Exponential technologies cause massive economic shifts that both create and destroy wealth. Companies are unlikely to be able to compete if they fail to get in the game before the end of the transformational phase.

During the transformational phase, the technology slowly improves, but plenty of critics point out the obstacles to its broad adoption. How do most companies respond?

  • They listen to the critics who confirm what they want to believe.
  • They mistakenly assume the technology will continue a slow, linear path of improvement.
  • They decide to wait for more evidence and think they can become a “fast follower” when the technology moves into the abundance phase.

Here are the questions they don’t seriously consider:

  • What if the technology’s most passionate advocates are right?
  • What if this is an exponential technology?
  • What small bets can we make on this technology while the window of opportunity is open?

In the transformational phase, companies should consider the risk of inaction and begin making small investments while they still have the chance to do so. But most companies do nothing until the abundance phase begins. By the time the starting gun goes off and everyone sees that a race is on, it’s too late. The laggards simultaneously attempt to “fast follow,” competing for the same resources and customers. But they can’t catch up to competitors that are already riding the explosive growth.

The Transformational Phase Is Key

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