The Other Side of Compounding
How Relationships Scale Geometrically
"Life did not take over the globe by combat, but by networking." - Lynn Margulis
"Be number one or number two in every market, and fix, sell or close to get there." - Jack Welch, CEO of General Electric
These two giants of their fields revealed truths that seem irreconcilable. Nature builds resilience through interdependence, creating systems where every participant's success strengthens the whole…..Business demands dominance through competition, where you either win or you exit.
Yet the most enduring businesses in history usually follow nature's playbook. They create value through relationships that multiply with time, not by optimising for narrow metrics in isolation. They build networks of mutual benefit rather than hierarchies of extraction. What if the businesses that last centuries have discovered something about value creation that our linear models can't capture? What if they're not playing the game we think they're playing?
Lines vs. Triangles - How Business Really Works
A seasoned family office principal recently described his investment portfolio as predictable - simultaneously efficient, direct, optimized for a single path to winning.
He'd captured something fundamental. Think of the difference between a line and a triangle. A line connects two points efficiently. Optimized, direct, predictable. This is modern business thinking. Maximize shareholder returns along a single path. Every decision involves trade-offs. Higher wages mean lower profits. Better supplier terms mean squeezed margins. Community investment means reduced shareholder value.
But in a triangle, each side reinforces the others, creating structural strength no single line could achieve. We recognize this intuitively in our own lives. A great marriage makes both careers flourish. Children secure at home perform better at school. Communities with strong local businesses have lower crime rates. Each relationship strengthens the others. The math tells the story: linear systems add value (1+1+1=3), while interconnected relationships multiply it (1×2×3=6).
It’s geometric, where the whole creates value impossible for the parts alone. Where movement, interactions and time are all your friend.
The Japanese developed this centuries ago through sanpo yoshi - good for the seller, good for the buyer, good for society. When all three thrive together, they create a self-reinforcing system that grows stronger over time. As Charlie Munger observed: "Show me the incentive and I'll show you the outcome." But in networked systems, incentives compound rather than compete.
When we talk about these interconnected business relationships, we mean patterns where each relationship multiplies the others. Supplier trust amplifies customer loyalty, employee tenure deepens community roots, patient capital enables long-term thinking. Companies with "inefficient" practices often outlast their optimized competitors because they're not playing a linear game. They're building compound value.
When Relationships Create Geometric Value
When Dee Hock created Visa, he understood something profound:
"In the deepest sense, distinction between competition and cooperation is a false dichotomy. The problem is not competition, but the illusion that we are separate - that we can win at another's expense."
Traditional hierarchies couldn't handle the complexity of global financial transactions. So he designed a system where competing banks could collaborate, creating value through networked relationships rather than linear control. The breakthrough came not from balancing competing interests but from creating patterns where each participant's success amplified others' success.
In Italy, the Agnelli family's stewardship of their industrial empire demonstrates networked value creation across generations. From Fiat's origins, they've created interlocking relationships across automotive manufacturing, suppliers, Turin's development, and Italian industrial culture. When Sergio Marchionne saved Fiat-Chrysler, he didn't just restructure finances. He rebuilt these relationships. He rekindled worker pride in Italian craftsmanship. Strengthened supplier partnerships across Europe. Reconnected communities from Turin to Modena. The family's patient capital through Exor enables long-term thinking across their holdings, from Ferrari to The Economist, each reinforcing the survival of the other.
Mars hasn't just built a confectionery business, they've created interlocking relationships where each connection multiplies the others. Cocoa farmers receive technical support and guaranteed purchases, creating supply security that enables consistent quality for retail partners. Manufacturing communities provide generational knowledge in exchange for stable employment. Multi-generational consumer trust justifies premium pricing that funds farmer programs.
This compounding enables patience impossible under linear optimization. Mars can invest in sustainable cocoa farming for decades because supply security multiplies manufacturing reliability multiplies retail trust multiplies pricing power. They maintain original community factories despite cost pressures because local knowledge and political capital compound over time. Family ownership aligns with these long-term stakeholder relationships, creating resilience that purely financial owners would optimize away.
When LEGO nearly collapsed in 2003, the Kristiansen family rebuilt geometric relationships: adult fans became brand ambassadors, designer partnerships elevated the brand, and Danish production continued despite cost pressures. Their core principle every brick must clutch perfectly with every brick made since 1958 created compounding trust across generations. Grandparents buy LEGO knowing it connects perfectly with their childhood sets, a relationship no competitor can replicate.
Aldi's model - limited SKUs, private label focus - masks deeper geometric patterns. Employee profit-sharing creates owner-like thinking, while decades-long supplier partnerships enable quality at prices competitors can't match. This networked model has proven so resilient that Aldi thrives from Germany to Australia, adapting the surface while maintaining the underlying stakeholder relationships.
How Geometric Patterns Compound Over Time
Geometric relationships possess a crucial temporal dimension. Unlike transactional relationships that reset with each interaction, geometric relationships accumulate value (and qualities) over time. Trust compounds. Capabilities deepen. Networks become denser. The connections themselves spread and appreciate.
The Heineken family maintains 150-year-old brewery operations in original communities despite globalization pressures, understanding that local water sources and brewing knowledge developed over centuries create value that financial buyers miss.
This time dimension shifts our entire evaluation framework. Traditional ROI assumes static relationships, but geometric value multiplies over decades. The apprentice trained today becomes the master craftsperson in twenty years. The supplier partnership maintained through tough times enables innovation decades later. The community investment creates political capital across electoral cycles.
Warren Buffett intuited this when acquiring Nebraska Furniture Mart. His promise to maintain their stakeholder relationships wasn't sentiment but recognition that compound value structures take generations to build and moments to destroy.
Why These Businesses Survive Crises
When the 2008 financial crisis hit retail, something curious happened at Costco. Rather than protecting margins like every MBA textbook would suggest, Jim Sinegal called his buying team with an unusual request: "I need the top 10 items people are putting in their baskets and we're going to take the margin down to five percent because our members need it."
The shareholders predictably objected. Sinegal told them to "pound sand."
What followed reveals something about how interconnected relationships create resilience. In a recent dialogue with Teresa Noonan, who spent three decades at Costco alongside Jim, I watched as this decision rippled through the entire system. Members who saved money during tough times renewed their memberships at even higher rates in the following years. Suppliers, seeing Costco protect their mutual customers, found creative ways to reduce costs together for shared survival. Employees worked harder to find efficiencies, knowing the company was living its values.
The pattern shows up everywhere at Costco. Consider their salmon operation. Customers were paying for fish by the pound - including inedible skin, bones, and fat that comprised significant weight. The obvious move would be to demand suppliers provide cleaned fillets. But this would saddle vendors with tons of waste and disposal costs. Instead, Costco's buyers spent years engineering a complete value chain transformation. Salmon skin became premium dog treats. Spine and pin bones were ground into omega-3 supplements for pharmaceuticals. Gray fat entered pet food production. Each "waste" stream became a revenue stream. Customers got 100% edible salmon at lower prices. Suppliers gained new businesses from what would have been garbage. The relationship created value that neither party could have achieved alone.
This wasn't just about individual transactions. Peter Malizia, who managed merchandising across Canada, noticed how the company protected entire ecosystems: "We told large suppliers we didn't want to be more than 25% of their business. If we pulled the plug and put them under, that can't be our responsibility."
Single-digit turnover in suppliers. Thirty-year relationships as the norm. During crises, these suppliers extended credit, prioritized shipments, collaborated on cost reductions. A failed supplier can't innovate, can't help during tough times, can't be a partner in creating value.
The culture itself became self-reinforcing. As Sinegal put it: "If you don't get that your job is teaching, then you don't get your job." Every person taught the next. Stories like the salmon innovation spread through the organization. The return policy that accepted anything, anytime, became legend. Trust compounded.
Perhaps that's why Costco emerged from the crisis stronger while traditional retailers struggled. They weren't playing the efficiency game. They were tending a network of relationships that multiplied value across every connection. When times got tough, they didn't protect margins—they protected the entire system. And the system protected them back.
Playing a Different Game
The best businesses that define the next century won't be those that optimize along single dimensions. They'll be those that master the art of multiplication - creating reinforcing relationships where each connection strengthens the others. Where suppliers become innovation partners, employees become owners, customers become advocates, and communities become defenders. These geometric systems reveal themselves over time through a simple test: crises make them stronger, not weaker.
Perhaps the most expensive mistake in business is using linear math to evaluate geometric systems. Every time we discount a company for "leaving money on the table" with stakeholders, we might be missing the multiplication happening underneath. Every time we optimize for efficiency over interconnection, we might be destroying tomorrow's compound returns for today's linear gains.
For those building businesses: In a world racing toward perfect efficiency, creating geometric value isn't just noble - it's the ultimate competitive advantage.
For those investing in them: It's an arbitrage opportunity hiding in plain sight.
The question is …what if the businesses that look like they're giving away value are actually just creating it geometrically?
Onwards.
Further Exploration….
For more on Dee Hock check out this compilation by Blas Moros.
This interview series with him later in life is a gem - with less than 10k or so views..should be millions.
Teresa Noonan spent over three decades at Costco, working directly with the founder, Jim Sinegal. Listen to our dialogue.
Peter Malizia built Canadian operations with Jim and the team over 20+ years. Listen to our dialogue.
Finite and Infinite Games by James Carse - The philosophical foundation for why some businesses play to win while others play to keep playing.
Thinking in Systems by Donella Meadows - How interconnected relationships create outcomes impossible for individual parts.
The Living Company by Arie de Geus - Why companies that survive centuries think like living organisms, not machines.