How 'The Paradox of Enrichment' can make or break a business.

What is Paradox of Enrichment?

Studies in ecology have proved that the number of predators and prey tend to oscillate together in fairly regular cycles.

The Hudson Bay company (a holding?company?of portfolio businesses that operate at the intersection of retail and real estate) has preserved records of the number of lynxes (predator) and hares (prey) since 1850 and their data shows unusual symmetry in these animals population: they move up and down together, after a brief time lag.

The hares (prey) rely upon the lynxes (predators) very as much as the other way round: without the lynxes, the number of inhabitants in bunnies will become excessively high and starve for food.

Both populations benefit from what we may call a ‘swinging cycle’ where numbers turn up and down but without reaching unsustainable peaks or troughs – the cycle rolls around a central point, called swinging equilibrium.

Now here is the paradox of enrichment: if some seemingly gentle environmental change allows inhabitants of the hares (prey) to go up substantially, this may, be harmful for both lynxes (predators) and hares (prey).

A large increase in hares leads to an even large increase in lynxes, who before long find that they don’t have enough prey to eat.

The number of predators zooms up initially and then plummets; and the number of preys follows the same pattern.

Deprived of predators, there are soon too many preys, who can’t find enough to eat.

So, a stable cycle turns into an unstable cycle.

The irregular cycle may end in tragedy for both prey and predators if one of the low cycles goes too far and the entire population of prey or predators is totally wiped out.

Because nature goes in cycles, the paradox of enrichment means that you really can’t have too much of a good thing.

The nature moves in cycles and the paradox of enrichment indicates that you really can’t have too much of a good thing.?

This paradox has a clear resemblance in the business strategy – when a market is profitable, it will lure new entrants, and profit will be pushed back to zero as a new equilibrium is uncovered.

The nature moves in cycles and the paradox of enrichment indicates that you really can’t have too much of a good thing.

Paradox of Enrichment's business implications

This paradox has a clear resemblance in the business strategy – when a market is profitable, it will lure new entrants, and profit will be pushed back to zero as a new equilibrium is uncovered.

From having too little firms in a market, before long there are too many.

Like in nature, equilibrium rarely happens in markets.

But it obeys swinging cycles – the system goes up and down in predictable ways.

This the world of hares and lynxes, of the stock market’s bear and bull swings, of too many entrants in the D2C and technology markets.

In my experience, markets follow irregular cycle if they have low barriers to entry and exit, undifferentiated products and no possible advantage from scale.

Remember the internet has reduced the barriers and we find a lot of new entrants (Predators) in the D2C and technology space.

With the limited amount of demand (prey) in the market (the customer population), the cycle may go unstable.

The paradox of enrichment will help you to see the markets in a whole-new way, comprehend the cycles and construct a sensible business strategy.

?(Rajesh Srinivasan is a Marketing Strategy Consultant, 2X Author and a Keynote Speaker)