The snowball effect is a metaphor that describes any action or event as it evolves from something unimportant to something larger and more significant. The metaphor is named after the analogy of a snowball as it rolls down a hill covered in snow. The snowball effect describes a scenario where one action or event results in many similar and more significant actions or events.
Understanding the snowball effect
As it rolls, the snowball picks up snow and increases in surface area as a result.
The increase in surface area means it can absorb more snow and grow even larger.
Perhaps most importantly, the snowball gathers momentum as it rolls down the slope and increases in size.
In business, it can be helpful to think of the snowball effect as past or current actions or events that will have significant benefits in the future.
The snowball effect in business
The snowball effect metaphor has multiple applications in business. Below is a look at just a few of these applications.
Entrepreneurship
Entrepreneurs are well aware of the implications of the snowball effect – even if they do not associate those implications with the metaphor itself.
A startup founder understands that reaching critical mass is the most difficult part of the process.
Once critical mass is reached, however, they know that the company is self-sustaining and profitable enough to grow by itself.
Blogging
Blogging is another example of the snowball effect at work, particularly in what is now an ultra-competitive market.
Most content writers start blogs and may write hundreds of informative or entertaining posts before they see any appreciable traffic.
The process of working to gain traction for a blog is characterized by frustration, uncertainty, and perseverance and requires a great deal of faith.
At some point, however, the blog will start to gather momentum. Perhaps a social media influencer or celebrity shares a post on social media.
Perhaps an update to the algorithm that ranks Google search results increases visibility.
Whatever the driver, note that the blog from this point will start to attract more and more traffic as it becomes increasingly well known.
Marketing
While everyone loves instant results, it is important to understand that it takes time for marketing campaigns to either show promise or be destined for the trash.
In other words, marketers should not abandon an idea before it has had a chance to prove itself.
According to the Online Marketing Institute, consumers need to hear an offer as many as thirteen times before the business can generate a qualified, sales-ready lead.
This can be explained by a couple of psychological effects. The first is the exposure effect, which posits that consumers respond more favorably to marketing messages they’ve heard before.
The second is the Baader-Meinhof phenomenon, which describes a situation where consumers are exposed to something and then begin to notice it everywhere.
Whatever the psychology behind marketing, the snowball effect reinforces the idea that marketing teams need to hit prospects with the same message repeatedly before they become a customer.
Once this has been achieved and provided the product is high quality, word-of-mouth means the business may experience a rapid increase in sales momentum.
Snowball effect examples
Warren Buffett
In a book titled The Snowball about his personal and professional life, Warren Buffett said that “Life is like a snowball. The important thing is finding wet snow and a really long hill.”
Most people attribute this quote to the billionaire’s investment strategy where stocks are held for a very long period of time – and for good reason.
Buffett has held companies like Coca-Cola and Wells Fargo for over 30 years, which has caused the value of his portfolio to appreciate like a snowball rolling down a hill.
In his 30s, Buffett’s net worth increased by around $24 million.
In his 40s, the increase was closer to $50 million. In his fifth decade, the 1980s, the value of his portfolio increased rapidly.
Buffett was worth around $376 million in 1982 and the value near-tripled to $1 billion in 1986.
As Buffet entered his 60s in the 1990s, his portfolio value increased nearly 16 times and then doubled once more between 1996 and 2002.
Despite plateauing somewhat in the 21st century, Buffett’s portfolio continues to grow at a rate that would have been inconceivable when he first started investing.
Building businesses
Buffett is opposed to the start-up world, instead specializing in safe (or what some may consider boring) companies and industries that match his investment philosophy.
But the snowball effect can also be present in a start-up and refutes the idea that a company has failed unless it achieves hockey stick growth in the first year.
Some of the most sustainable, profitable, standalone businesses took 5 or 10 years to build before they started to gather momentum. Consider Facebook, for example.
Many will be surprised to learn that it took Facebook around 5 years before the company turned a profit.
This was facilitated by an increase in application sales and advertising revenue as the total number of users on Facebook tripled over the course of 2009 to 300 million.
From a base of $153 million in the previous year of 2008, Facebook’s revenue growth has also increased at a rapid rate.
Five years later, in 2013, revenue was 50 times higher to sit at around $7.87 billion.
It was around this time that the company hit an inflection point that stimulated the aggressive accumulation of Facebook shares.
The inflection point was of course driven by accelerating revenue growth which occurred on both a sequential and year-over-year basis.
But it was also driven by a similar acceleration in mobile advertising income and underlying profitability as well as improved cash flows.
Facebook also entered the Fortune 500 list in 2013 and it was clear that the company had become a major institution with substantial global reach.
Between 2013 and 2017 with the company posting numbers in the tens of billions, revenue increased by at least 48.57% each year and peaked at an impressive 64.48% in 2014.
This was accompanied by a steady (though not quite as steep) increase in monthly active users.
Key takeaways
- The snowball effect describes a scenario where one action or event results in many similar and more significant actions or events.
- In business, it can be helpful to think of the snowball effect as past or current actions or events that will have significant benefits in the future.
- The snowball effect has multiple applications in business, including entrepreneurship, marketing, and blogging.
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