Over the past few years, I have started to immerse myself in the world of investing. How does it work, what are the risks and what can it bring me? And I must confess: the more I learn about it, the more I see the similarities with online experimentation and conversion rate optimization (CRO). Reason enough to list them.

"Compound interest is the eighth wonder of the world. He who understands it, earns it; he who doesn't, pays it." - Albert Einstein

Compound interest

In the world of investing, compound interest is a powerful phenomenon, also known as the interest-on-interest effect. By reinvesting returns, small investments can grow significantly over time. For example, an annual investment of €1,200, at an average interest rate of 7% (based on the average historical return of the S&P 500 index and adjusted for inflation) can grow exponentially over 30 years to a total amount of more than a ton (see Figure 1). Albert Einstein even considered it the eighth wonder of the world.

Figure 1: https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator

This principle of cumulative growth is also a fundamental aspect within successful CRO programs. Just as in investing, where every euro invested has the potential to grow, every optimization in the user experience has the potential to improve conversion rates. And each winning experiment can in turn build on previous successes. Thus, in theory, a monthly improvement of 7% in your conversion rate could eventually lead to a doubling of your sales within a year. Of course, this is an ideal situation and actual results will vary depending on various factors such as market conditions, competition and the features of your website or product. But the underlying principle remains the same: By experimenting, learning and continuously improving the user experience, you can turn small short-term gains into significant long-term growth.

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Risk Management

Understanding and minimizing risk is fundamental to successful investing. To do this, investors apply "diversification" among other things. This involves dividing their portfolio among different companies, industries, economies and currencies. By not putting all their eggs in one basket, they are less dependent on specific events and thus spread risk. But broadening investment horizons and spreading out deposits can also be tactics to reduce investment risk.

CRO is risk management in itself, of course; by testing new features and changes first, you reduce the risk of implementing a design with a potentially negative impact. But in addition, we can also increase our chances of winning by not just testing on a single page or with a single hypothesis. Precisely by diversifying our optimization efforts across different pages, channels and optimization strategies, we increase our chances of finding winners.

Long-term perspective

Investors know that long-term success requires patience and discipline above all else. They understand the importance of long-term investments and avoiding the trap of impulsive, short-term decisions. "Time in the market beats timing the market." Defining a clear strategy and sticking to it over a long period of time generally produces higher returns.

In CRO, it is no different. CRO initiatives can potentially yield immediate results, but the focus is on continuous improvement of the user experience to achieve long-term success. Doing good research on the user experience will help you find out your potential customer's pain points and motivations and build a consistent track record of improvements and successes for the long term.

Research and substantiation

Which brings me to the next point; research. Investors just spend hours analyzing market trends, company fundamentals and economic factors before making an investment. An investment is then essentially a hypothesis about how certain events will affect the market and which investments offer the greatest chance of return.

Within CRO, we do practically the same thing. Based on researching the behavior of the target audience and analyzing user data, we formulate hypotheses. We then develop the most promising hypotheses into experiments. With this reasoned approach, we reduce the risk of failed experiments and maximize the chances of success.

Image 2: Bloomberg 2019 via Thomke H. Stefan, Experimentation Works, 2020

Although investing and CRO so at first glance may seem like different worlds, they share quite a few similarities when it comes to the pursuit of growth, minimizing risk and achieving long-term success. Take, for example, the weighted index composed of companies that have embraced a culture of large-scale experimentation (see Figure 2). These companies have proven that experimentation is not only a valuable method, but also contributes to sustainable competitive advantage and long-term growth. As far as I am concerned, this deserves its own quote.

"Continuous experimentation is the ninth wonder of the (digital) world. Those who understand it, stay ahead; those who don't, fall behind." - Dennis Nederlof

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