Butterfly Effect And Why It Matters In Business

In business, the butterfly effect describes the phenomenon where the simplest actions yield the largest rewards. The butterfly effect was coined by meteorologist Edward Lorenz in 1960 and as a result, it is most often associated with weather in pop culture. Lorenz noted that the small action of a butterfly fluttering its wings had the potential to cause progressively larger actions resulting in a typhoon.

Understanding the butterfly effect

Businesses can leverage the butterfly effect by incorporating small positive actions that have significant positive consequences. These changes have the potential to bring benefits that far exceed the large sums of money a business spends attracting customers.

How is this achieved? Where should a business focus its efforts?

Using the butterfly effect to nurture relationships

Businesses are about people and success is reliant on strong relationships between employees, customers, and other stakeholders.

Let’s take a look at each group in more detail.


Richard Branson once said that employees come first, not clients. If employees are taken care of first, then they will naturally take care of the clients.

Common sense says that treating employees badly leads to an ineffective workforce. What’s more, employees are more likely to treat consumers badly who are then encouraged to take their business elsewhere.

Businesses should take the time to compliment their staff while also encouraging them to compliment each other. Indeed, the small action of complimenting one person has the potential to spread good vibes across the organization very quickly. In turn, a positive culture develops which is passed on to the consumer.


Customers are the lifeblood of a business, but countless organizations have frustrating customer service centers where it is difficult to talk to a real person.

Customer complaints are inevitable. While many complaints are perhaps illegitimate, many others provide valuable insights on how a company can raise their standards. The small action of responding to each complaint with grace and empathy leaves a lasting impression on the customer and ensures they walk away with a positive experience.


Publicly listed companies make the mistake of treating their shareholders with disdain. Announcements are vague, infrequent, or deliberately worded to conceal bad results.

These companies must remember that many stakeholders are part owners in the company and treat them accordingly with open and transparent communication. Other stakeholders such as suppliers, distributors, and the community should also be subject to small, positive actions that strengthen relationships.

Butterfly effect best practices

Small actions are the foundation of the butterfly effect. Most are related to having a positive attitude, including:

  • Being a good role model. Leaders are the most obvious candidates, as their words and actions rub off on subordinates. However, every employee can be a good role model by treating others with appreciation, positivity, and gratitude.
  • Leaving personal issues at home. Personal issues that cause stress should never be brought into a work environment. When stressed individuals treat others with contempt, the butterfly effect can take effect but with negative consequences.
  • Paying it forward. Some argue that this is vital to the butterfly effect in business, and for good reason. Small acts of kindness – without the expectation of reciprocity – can create a chain of small actions that lead to something substantial.

Key takeaways

  • The butterfly effect in business describes the potential for small actions over time to yield much larger positive results.
  • People are the most important aspect of the butterfly effect in business. Employees, customers, and other stakeholders must be appreciated for their respective roles in maintaining operational viability.
  • To embrace the butterfly effect mentality, a positive attitude is key. Managers and employees alike must become role models for positivity by leaving personal issues at home and paying good vibes forward.

Connected Business Concepts

As highlighted by German psychologist Gerd Gigerenzer in the paper “Heuristic Decision Making,” the term heuristic is of Greek origin, meaning “serving to find out or discover.” More precisely, a heuristic is a fast and accurate way to make decisions in the real world, which is driven by uncertainty.
The recognition heuristic is a psychological model of judgment and decision making. It is part of a suite of simple and economical heuristics proposed by psychologists Daniel Goldstein and Gerd Gigerenzer. The recognition heuristic argues that inferences are made about an object based on whether it is recognized or not.
The representativeness heuristic was first described by psychologists Daniel Kahneman and Amos Tversky. The representativeness heuristic judges the probability of an event according to the degree to which that event resembles a broader class. When queried, most will choose the first option because the description of John matches the stereotype we may hold for an archaeologist.
The take-the-best heuristic is a decision-making shortcut that helps an individual choose between several alternatives. The take-the-best (TTB) heuristic decides between two or more alternatives based on a single good attribute, otherwise known as a cue. In the process, less desirable attributes are ignored.
The concept of cognitive biases was introduced and popularized by the work of Amos Tversky and Daniel Kahneman since 1972. Biases are seen as systematic errors and flaws that make humans deviate from the standards of rationality, thus making us inept at making good decisions under uncertainty.
The bundling bias is a cognitive bias in e-commerce where a consumer tends not to use all of the products bought as a group, or bundle. Bundling occurs when individual products or services are sold together as a bundle. Common examples are tickets and experiences. The bundling bias dictates that consumers are less likely to use each item in the bundle. This means that the value of the bundle and indeed the value of each item in the bundle is decreased.
The Barnum Effect is a cognitive bias where individuals believe that generic information – which applies to most people – is specifically tailored for themselves.
First-principles thinking – sometimes called reasoning from first principles – is used to reverse-engineer complex problems and encourage creativity. It involves breaking down problems into basic elements and reassembling them from the ground up. Elon Musk is among the strongest proponents of this way of thinking.
The ladder of inference is a conscious or subconscious thinking process where an individual moves from a fact to a decision or action. The ladder of inference was created by academic Chris Argyris to illustrate how people form and then use mental models to make decisions.
The Six Thinking Hats model was created by psychologist Edward de Bono in 1986, who noted that personality type was a key driver of how people approached problem-solving. For example, optimists view situations differently from pessimists. Analytical individuals may generate ideas that a more emotional person would not, and vice versa.
Second-order thinking is a means of assessing the implications of our decisions by considering future consequences. Second-order thinking is a mental model that considers all future possibilities. It encourages individuals to think outside of the box so that they can prepare for every and eventuality. It also discourages the tendency for individuals to default to the most obvious choice.
Lateral thinking is a business strategy that involves approaching a problem from a different direction. The strategy attempts to remove traditionally formulaic and routine approaches to problem-solving by advocating creative thinking, therefore finding unconventional ways to solve a known problem. This sort of non-linear approach to problem-solving, can at times, create a big impact.
Moonshot thinking is an approach to innovation, and it can be applied to business or any other discipline where you target at least 10X goals. That shifts the mindset, and it empowers a team of people to look for unconventional solutions, thus starting from first principles, by leveraging on fast-paced experimentation.
Tim Brown, Executive Chair of IDEO, defined design thinking as “a human-centered approach to innovation that draws from the designer’s toolkit to integrate the needs of people, the possibilities of technology, and the requirements for business success.” Therefore, desirability, feasibility, and viability are balanced to solve critical problems.
The CATWOE analysis is a problem-solving strategy that asks businesses to look at an issue from six different perspectives. The CATWOE analysis is an in-depth and holistic approach to problem-solving because it enables businesses to consider all perspectives. This often forces management out of habitual ways of thinking that would otherwise hinder growth and profitability. Most importantly, the CATWOE analysis allows businesses to combine multiple perspectives into a single, unifying solution.

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