snowball-effect

What Is The Snowball Effect? The Snowball Effect In A Nutshell

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.

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.

Main Free Guides:

Connected Business Concepts to Value Investing

Circle of Competence

circle-of-competence
The circle of competence describes a person’s natural competence in an area that matches their skills and abilities. Beyond this imaginary circle are skills and abilities that a person is naturally less competent at. The concept was popularised by Warren Buffett, who argued that investors should only invest in companies they know and understand. However, the circle of competence applies to any topic and indeed any individual.

What is a Moat

moat
Economic or market moats represent the long-term business defensibility. Or how long a business can retain its competitive advantage in the marketplace over the years. Warren Buffet who popularized the term “moat” referred to it as a share of mind, opposite to market share, as such it is the characteristic that all valuable brands have.

Buffet Indicator

buffet-indicator
The Buffet Indicator is a measure of the total value of all publicly-traded stocks in a country divided by that country’s GDP. It’s a measure and ratio to evaluate whether a market is undervalued or overvalued. It’s one of Warren Buffet’s favorite measures as a warning that financial markets might be overvalued and riskier.

Warren Buffet Companies

warren-buffett-companies
Warren Buffett is an American investor, business tycoon, and philanthropist. Known as the “Oracle of Omaha”, Buffett is best known for his strict adherence to value investing and frugality despite his immense wealth. He is among the wealthiest people in the world. Most of his wealth is tied up in Berkshire-Hathaway and its 65 subsidiaries.

Price Sensitivity

price-sensitivity
Price sensitivity can be explained using the price elasticity of demand, a concept in economics that measures the variation in product demand as the price of the product itself varies. In consumer behavior, price sensitivity describes and measures fluctuations in product demand as the price of that product changes.

Price Ceiling

price-ceiling
price ceiling is a price control or limit on how high a price can be charged for a product, service, or commodity. Price ceilings are limits imposed on the price of a product, service, or commodity to protect consumers from prohibitively expensive items. These limits are usually imposed by the government but can also be set in the resale price maintenance (RPM) agreement between a product manufacturer and its distributors. 

Price Elasticity

price-elasticity
Price elasticity measures the responsiveness of the quantity demanded or supplied of a good to a change in its price. It can be described as elastic, where consumers are responsive to price changes, or inelastic, where consumers are less responsive to price changes. Price elasticity, therefore, is a measure of how consumers react to the price of products and services.

Economies of Scale

economies-of-scale
In Economics, Economies of Scale is a theory for which, as companies grow, they gain cost advantages. More precisely, companies manage to benefit from these cost advantages as they grow, due to increased efficiency in production. Thus, as companies scale and increase production, a subsequent decrease in the costs associated with it will help the organization scale further.

Diseconomies of Scale

diseconomies-of-scale
In Economics, a Diseconomy of Scale happens when a company has grown so large that its costs per unit will start to increase. Thus, losing the benefits of scale. That can happen due to several factors arising as a company scales. From coordination issues to management inefficiencies and lack of proper communication flows.

Network Effects

network-effects
network effect is a phenomenon in which as more people or users join a platform, the more the value of the service offered by the platform improves for those joining afterward.

Negative Network Effects

negative-network-effects
In a negative network effect as the network grows in usage or scale, the value of the platform might shrink. In platform business models network effects help the platform become more valuable for the next user joining. In negative network effects (congestion or pollution) reduce the value of the platform for the next user joining. 

Creative Destruction

creative-destruction
Creative destruction was first described by Austrian economist Joseph Schumpeter in 1942, who suggested that capital was never stationary and constantly evolving. To describe this process, Schumpeter defined creative destruction as the “process of industrial mutation that incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.” Therefore, creative destruction is the replacing of long-standing practices or procedures with more innovative, disruptive practices in capitalist markets.
Scroll to Top
FourWeekMBA