2 min read

Orienting within orders of magnitude

How do you make a singular point within a massive spectrum more concrete?

When I was in high school I had a history teacher who gave us a set of ten dates with which to orient our understanding of history. Using this set you could hear a random date, and mentally interpolate between the historical dates you were familiar with to establish a rough context.

Sadly, I don’t remember the dates, but I’ve noticed myself taking a somewhat similar approach to understanding large numbers. Without something to hold on to, large numbers feel meaninglessly abstract and hard to wrap your head around.

For example, what’s the difference between a business valued at $2 billion, $20 billion, $200 billion, and $2 trillion?

Here are some ballpark valuation examples within these orders of magnitude:

  • $2 billion: Herman Miller and the Cheesecake Factory
  • $20 billion: Delta Airlines and Door Dash
  • $200 billion: Verizon and Coca Cola
  • $2 trillion: Apple and Microsoft

From the names alone you can begin to build a rough understanding of what each of these orders of magnitude might signify.

~$2 billion: good companies with a somewhat niche approach to a large target market

  • Cheesecake Factory: everyone goes to restaurants (large market), but most people aren’t eating at Cheesecake Factory more than once a month (niche)
  • Herman Miller: everyone sits in chairs (large market), but most offices aren’t stocked with high-end furniture (niche)

~$20 billion: leading companies in large markets with strong competition

  • Door Dash: restaurants wanting to offer delivery is a large market with a ton of competition, and Door Dash is a leader in that category
  • Delta Airlines: one of the four big airlines in the US, a notoriously competitive market

~$200 billion: generational leaders in massive markets with strong moats

  • Coca Cola: Massive market (everyone drinks, lol) with complete global presence, distribution, product offerings (water, soda, energy, etc.) and brand recognition.
  • Verizon: One of three cell service providers. Massive market (everyone has a cell phone) with incredible barriers to entry (how many new non-MVNO cell providers are there?)

~$2 trillion: companies capturing generational technological changes

  • Apple and Microsoft: There are only a handful of companies valued at over $1 trillion (the big tech companies, and Saudi Aramco). Their ability to capture the lion’s share of the value created by the biggest technological shift of this generation (and in Aramco’s case, the previous technological shift) puts them alone in this category

In this business size example you can start contextualizing changes within your narrative understanding of the orders of magnitude. For example, Snap (creators of Snapchat), briefly hit a $100 billion valuation in 2021. People thought it might be a generational business with a strong moat. Now in 2023 it’s at a $16 billion valuation—more fitting for a leader in a large market with strong competition.

Business valuation is one example, but you can apply this approach to most areas where numbers are thrown around: city populations, business market sizes, travel distances, etc. When something is in a smaller or larger magnitude than you expect, you’ll be prompted to figure out why. Once you have these benchmarks in mind you’ll start filing things you learn around them, correcting them, and just generally making your understanding of the world deeper and more vivid.