07/09/2013 07:03 pm ET Updated Sep 08, 2013

The Universe Is Run By Selection

How long is it since you sat quietly and pondered Darwin's theory of evolution by natural selection, and what it means for your business and your life? If you're anything like me, I know the answer -- too long!

Let's mind ourselves of Darwin's elegant and economical thesis, resting on three plain observations.

First, creatures overproduce their young. "A struggle for existence," Darwin writes, "inevitably follows from the high rate at which all organic beings tend to increase."
Second, all creatures vary. We are all unique.

Third, much of that variation is inherited. Offspring resemble their parents.

Combine the three observations and you end up with a struggle that has relatively few winners: "All organic beings," Darwin says, "are exposed to severe competition. Nothing is easier to admit in words the truth of the universal struggle for life, or more difficult than constantly to bear this conclusion in mind. Yet unless it be thoroughly engrained in the mind, the whole economy of nature ... will be dimly seen or quite misunderstood."

The plants and animals that survive will be those that fit in best with what he called the conditions of life. "The slightest advantage in one being ... or better adaptation in however slight a degree to the physical conditions, will turn the balance." Darwin hammers away at the point that natural selection depends on variation -- "unless profitable variations do occur, natural selection can do nothing."

The process, then, is simple -- variation, then selection, then further variation, and so on, back to the start of life and forward to eternity.

Darwin also implied that diversity of species leads to efficient use of resources. He suggested that the more species on a piece of land, the more efficiently it would be used. Research on 147 plots of Minnesota prairie has proved Darwin right -- the greater the number of species on a plot, the more the bio-mass the plots produces; with fewer species, nitrogen leached out of the soil and was wasted. If a species is diverse, and connected to other species, it can prosper; if the species is homogeneous, it is vulnerable. In human society, the same applies to countries, regions, and social classes. This is something not yet grasped by the hapless and hopeless leaders of the European Union. The glory of Europe is its matchless diversity, and to weaken that diversity is to impoverish everything in every sense.

We can see the same process at work in cities. In the 1950s and 1960s, private and public developers built massive tower blocks, all the same shape and pattern -- oblong, undifferentiated. Like Malvina Reynold's song Little Boxes "they're all made out of ticky-tacky and they all look just the same." Result -- misery, alienation, crime. In her fascinating book The Death and Life of Great American Cities, Jane Jacobs shows that when street lengths, building shapes, ages, and areas within cities are more diverse, then the cities are more beautiful, more energetic and richer.

Diversity, then, always leads to even greater diversity, and to sustainable growth. If we want to encapsulate Darwin's theory in two words, these are they -- diversity works.

All the evolutionary theorists of the nineteenth century shared three common themes:

• Differentiation emerges from generality. One original species spawned all the rest. New species are formed from existing ones. This is a universal principle - true in branches of knowledge, the evolution of new markets, and the spread of new firms by spinoffs from existing ones. Variation is always the key to development.

• Differentiations become generalities from which further differentiations emerge. Variation never stops. Inevitably it leads to greater complexity and diversity - until life is simplified. In nature this is through the death of species, and, in humans, of tribes and languages. In business it is through the death of firms, and also through conscious actions of a tiny number of very important actors - those who simplify an industry. Think, for example, of budget airlines, or IKEA.

• Development depends on co-development. "All forms of life," intoned Darwin, "make together one grand system". As Jane Jacobs comments, "A horse requires more than its ancestors. A horse implies grass. Grass implies topsoil. Topsoil implies breakup of rocks, development of lichens, worms, beetles, compost-making bacteria, animal dropping -- no end of other evolution and lineages besides that of the horse."

But the reason that Darwin is justly celebrated is that we went beyond these three insights and added three more of his own:

• The odds against survival are high, leading to a struggle for life. In nature, in ideas, in fashions, and in economies, so much is produced that only a small fraction can survive. Failure is normal. Only organisms producing many offspring and generating a stream of new entrants can beat the odds.

• The conditions of life determine whether species and individuals make it. Species can't control their destinies, and individuals have even less chance. This is a key insight. If a business or career is failing, there are only two remedies -- change the environment, or change the character of the business or the individual. Species can't control the environment, but individual humans often can, by moving to a new domain where the individual fits in better.

• The process of natural selection contains high degrees of luck, randomness, and arbitrary development. Natural selection is a process of experimentation in which luck is paramount. So is business. The only way to rig the odds is to experiment more and vary more.

Finally this week, my favourite marketing guru, Al Ries, describes five steps to evolutionary success:

1. Narrow the focus

2. Stock in depth

3. Buy cheap

4. Sell cheap

5. Dominate the category.

To which I would add:

6. Experiment, experiment, experiment. Vary, vary, vary.

Your task this week is to think of a market you could evolve using these six principles.

Next week, I'll lay out four more lessons of economic selection for products and markets, so if you found this helpful, tune in next week, same time, same place.