5-years is too short

Successfully building new things requires a mental model of the future. It doesn’t matter whether you’re investing your time, your labor, or your your mind to do so.

Anyone who angel invests, works at a startup, or even helps to build products and services at enormous companies needs to be able to accurately gauge what the future is going to look like. People at Procter & Gamble need to understand how folks will buy soap and wash themselves in the future. Folks at McDonald’s need to understand how health trends will impact their customers diets. And companies like Hertz need to successfully forecast the role autonomous vehicles will play in the transportation market.

But more often than not, when I see people predicting what the future holds, it’s on an awkward 5-year planning horizon. It’s my belief that 5 years is just about the worst planning horizon you can choose.

For most people, 3-years is incremental. 5-years feels long. And 10-years seems unfathomable. If most people are changing jobs every decade, the thought of planning their pursuits around a vision of the world that far in advance may feel ludicrous.

So we end up in 5-year planning cycles.

But the problem is that we think we can see 5 years in the future. We feel like we have enough insight into what changed and how it played out in the last 5 years to successfully project how the world should work from here. We work forwards, not backwards.

On 5-year timelines the world seems linear. You remember buying your first iPhone. You remember looking down at your pocket. And you remember imagining, wow… this thing is going to be really cool. On 5-year timelines, we feel like we can forecast change.

Just take a look at the below chart (US GDP growth quarterly from 2010-2014). None of those growth rates looks too big. The US Economy wasn’t growing more than 5% annually during any quarter in the past 5 years. And in some quarters it’s even been negative.

It’s not dramatic growth. It’s slow and steady.

The problem is that over time, change compounds. It’s exponential, not linear. And it’s incredibly difficult to forecast out the future from an expectation of incremental, linear change.

Just look at US per capita GDP from 1920 to today. That same incremental growth that seems so easy to predict has led us to GDP per capita that is almost 10 times larger in just a 90 year period. If we follow the same trajectory, we'll see that number close to 500K annually. Every American could own a Tesla, a loft in Manhattan, a beach house, and so much more.

It sounds fantastical. But it’s probably not too far from the truth. With the advances in robotics, machine learning, and networking that we’re seeing today, it’s not unreasonable to imagine a world of abundance. (Obviously, we’ll have some social challenges along the path - but that’s an entirely different challenge).

When you start thinking about the ways the world will change on a 10, 20, or 30-year time horizon, it stops looking linear. We know that 30 years from now, driverless cars will be a reality. On that timeline, we can very clearly see a path towards using renewable energy to power our transportation and our homes. We presume that even the smallest household items will be networked.

And when you start planning based on that world, you have a very different perspective. The questions you ask yourself are fundamentally different. You’ll question whether your business, strategy, or profit model are at all relevant. You’ll challenge yourself on the types of talent needed in this future economy. You’ll force yourself to think about how the very lives of your consumers will evolve.

On a 5 year timeline, we miss all of that.

We might slightly underestimate the the scope of change on a 5-year time horizon if we start imagining based on the world that exists today. But we drastically underestimate the scope of change 20 years from now if we start at that same point.