Geoffrey West

Professor at the Santa Fe Institute

Why cities live and companies die

Geoffrey West perspective

Is the Maersk Group a great whale? Is Stockholm an elephant? Why do cities live forever, while companies don’t? Experimental physicist Geoffrey West, who holds a degree from Cambridge, a PhD from Stanford and a day job as a professor at the Santa Fe Institute, is the man behind these kinds of questions – and their answers. By applying the logic of physics, West has found a remarkably consistent set of mathematical laws that govern the growth and lifespan of plants and animals, and a still more surprising set of rules for the growth and lifespan of cities and companies.

Why cities live and companies die

Geoffrey West perspective

Is the Maersk Group a great whale? Is Stockholm an elephant? Why do cities live forever, while companies don’t? Experimental physicist Geoffrey West, who holds a degree from Cambridge, a PhD from Stanford and a day job as a professor at the Santa Fe Institute, is the man behind these kinds of questions – and their answers. By applying the logic of physics, West has found a remarkably consistent set of mathematical laws that govern the growth and lifespan of plants and animals, and a still more surprising set of rules for the growth and lifespan of cities and companies.

The biological laws of cities and companies

Biology is often used as a metaphor in politics, business and economy. We talk of the ecology of a market place, the culture of a city and the DNA of companies, but is this just “metaphoric bullshit” (using West’s own words), or is there some real substance to it; a lesson to be learnt that we can utilise in a meaningful way?

West has approached the study of social constructs such as cities and companies on the backdrop of the “scaling law” applied within the field of biology. The law shows that if you double the size of an animal, it doesn’t require twice as much energy to stay alive, but only 75% more. This so-called sublinear scaling can be drawn on a graph with a simple diagonal line between the X and Y axes. And the law is remarkably consistent, whether it is applied to mammals, fish or insects. Even trees. Larger species simply utilise their energy more efficiently than smaller species. The scaling law can be extended to a wide range of physiological variables, including an organism’s time to mature, its growth rate, life span, etc. It didn’t take West long to start pondering whether the law could also be applied outside the sphere of biology. Cities and companies, for instance, actually have much in common with organisms.

“When it starts off, a company tends to be quite diverse and multidimensional because it is not quite sure of its product space or where its markets are going to be. But very quickly, it has to narrow down to one or two key products in the market, and at the same time build up a bureaucracy and an administration to run it in order to make sure that the bills are paid and the floors are swept”.

Geoffrey West
Professor at the Santa Fe Institute

Rumour has it that West does not eat lunch. He is believed to have a mild allergy to food, since meals make him both sleepy and nauseated. According to reliable sources, he subsists on nuts and black tea. West was born and raised in London’s harsh East End in the aftermath of World War II. His bright mind earned him an undergraduate degree from the University of Cambridge and a PhD in physics from Stanford University. West’s TED talk, The surprising math of cities and corporations, has had more than 1,500,000 views.

A whale is a scaled-up horse

West discovered that cities, like any living organism, abide by scaling laws, and the same goes for companies. However, the basis for comparison proved far more complicated than what may be assumed at first glance; within biology, you have infrastructural networks – like neuron pathways in the brain or protein connections in the DNA, but cities and companies have both infrastructural networks as well as social networks between the humans who are part of those systems. However, despite the obvious complexity and scale, West claims that New York is no more than a scaled-up Santa Fe: “It’s just like with organisms. A whale doesn’t look much like a horse, but it is in fact a scaled-up horse to an 85 to 90% level”, West said in an interview with Strategy+Business.

By going through an exhausting amount of data, Professor West and his team have proven scaling laws for social constructions such as cities and companies similar to the ones identified for organisms. New York is actually just like a big whale, claims West after having studied the scaling relations between the population of different cities and a range of attributes such as productivity, consumption, infrastructure, innovation, crime and all the way to the number of gas stations. His studies have found that just like living organisms, cities scale sublinearly by a factor of .85, meaning that they enjoy a 15% benefit in economy of scale as they double in size – from higher wages and amplified innovation to increased crime and rise in contagious diseases. Believe it or not, his studies actually show that people walk measurably faster in New York compared to their fellow countrymen in San Francisco. In Tokyo, they walk even faster.

The increased productivity might explain why more than 50% of the world’s population now live in urban areas. In highly developed countries, the percentage of people living in cities is in the 75–90% range – and rising. Humans across the globe are simply moving from rural to urban areas in order to enjoy the buzz and opportunities offered in the cities.

Why are companies fragile?

When West turned his attention from cities to companies, he embarked on his research with a big question: Why is it that cities are very robust and viable, while companies, like organisms, are relatively fragile? In coherence with the economy of scale principle, cities thrive in their growth. And according to West’s findings, the scaling laws apply to companies as well. However, in contrast to organisms and cities, companies become less efficient as they grow. Through an analysis of more than 25,000 publicly traded companies, West and his team found that the average lifespan of a company already on the stock exchange is about 10 years, after which most companies go bankrupt, merge or are acquired. “If you look at all of the biggest U.S. companies; those that have lasted around 100 years, you’ll see that relative to GDP, they’ve all stopped growing”, explains West in an interview with Percolate, and continues, “they become too big to easily adjust and ‘reinvent’ themselves, spur a major innovation, or open up again into the marketplace. Now there are exceptions, but the general rule is that companies tend to get stuck and die. They just aren’t quick enough, and timing and speed are important for survival”.

West’s statement turns the attention to the underlying dynamics of this significant difference between cities and companies, and perhaps more importantly: What can companies learn from cities? Why does a city increase the productivity per capita as it grows, while a company decreases profit per employee as it grows?

“Now there are exceptions, but the general rule is that companies tend to get stuck and die. They just aren’t quick enough, and timing and speed are important for survival”.

Flourishing diversity

In order to answer these questions, West pinpoints one of the most interesting differences as being the inherent diversity between the two: “Cities are not run top-down. There is a mayor and a city councillor, but they don’t run the city in the sense that the administration runs a company, and it can’t be that way. And that is the dilemma. Because you can’t run a company in the same kind of randomness as a city. You can’t let everyone do whatever they like”, West said at a Transition Conference for Percolate in 2015. A city is composed of more minds from more places and with more perspectives, interacting in the same place – and this leads to entrepreneurship, innovation and sustained growth.

Herein lies the contrast between a city and a company. While a city continuously becomes more multidimensional, a company typically becomes more undimensional, narrowing its dimensions, activities and tolerance for extremes over time. “You can understand this because when it starts off, a company tends to be quite diverse and multidimensional because it is not quite sure of its product space or where its markets are going to be. But very quickly, it has to narrow down to one or two key products in the market, and at the same time build up a bureaucracy and an administration to run it in order to make sure that the bills are paid
and the floors are swept”, West explained in an interview at a RiskMinds conference in Amsterdam. These restrictions form the core of the dilemma; companies build bureaucracy to control costs, keep focus and deliver short-term results, and consequently, they continually narrow their room for diversity. As opposed to cities.

“When you walk down Fifth Avenue, you see crazy people. Because cities accommodate all of us. If you visit General Motors or American Airlines, you don’t see crazy people. Crazy people are fired”, West said in an interview with the Edge. People stay within the boundaries of their job description and, according to West, way too few wander the hallways brainstorming on how to innovate the company. The rigid frameworks end up killing the very nature of the initial business idea: “The administrative aspect [of companies] squeezes out the more creative aspect, which in the end leads to extreme vulnerability”, West concluded at the RiskMinds conference.

Postponing the inevitable

“I think there are tremendous lessons to be learned from biology and from cities that could be incorporated into the philosophy of company cultures”, West pointed out at the Transition Conference. “It is not that these ideas are so original, it is more that they can be seen in a quantitative mechanistic framework, and […] despite the fact that all companies can be seen as unique, and each situation as unique, there’s an extraordinary regularly set of laws, if you like, that are operating”.

In the end, the key lies in the ability to foster diversity, to reinvent ourselves and to open up for multidimensionality. A challenge that West, for one, strongly encourages companies to take: “Let it [the company] be much more open to having mavericks, naysayers, and people with odd ideas hanging around. Allow a little bit more room for bullshit. You need some mechanism to somehow break this straitjacket that big companies take on as they grow”, concluded West in the interview with Strategy+Business.