I’ve been reading a book about the birth of the first credit card, which drove me thinking recently about how an invention can supercharge growth in an industry that seems completely unrelated. Everyone knows of Ford’s first affordable automobile, the Model T, and its credit for transforming American manufacturing and changing urban planning — suddenly everyone was mobile. But there were also seemingly unrelated industries that were heavily impacted. The Model T meant people could drive and stay at far away places that they couldn’t before —leading to the booming of the hotel and vacation industry.
Technological invention will only get you so far — you also need affordability
But you cannot transform the structure of an industry by purely inventing a new technology — it is also about affordability. Ford produced the Model A in 1903 for $900 — well beyond the reach of ordinary people. The Model A was still seen as an expensive toy for rich people. It wasn’t until ten years later that Ford was able to drop the price down to $260, that led to the mass adoption of the car, giving people the freedom and power that comes with mobility.
The correlation between cost and economic value that entrepreneurs get wrong
We often believe the correlation between cost and economic value is linear — $1 cheaper means 1% increase in economic value. But in fact, it’s only linear up to a point — and then its exponential, where $1 cheaper means 50% or even 100% more economic value.