Occasionally in JAM VIEWS we cover a strategy from my 25-lesson course, Building Special Companies, and recently I had the pleasure of discovering four of these topics presented in the book, Exponential Organizations by Salim Ismail, Michael Malone and Yuri Van Geest - of course explained much better, even with proper grammar!
Exponential Organizations (ExO's) take many of the Building Special Companies business fundamentals and put them on steroids, blood doping, the hyperbaric chamber, and even those LeBron compression boots to turn small companies into Unicorns ($1 billion valuations). Salim and his associates, which include the founders of Singularity University, Peter Diamandis and Ray Kurzweil (Google's AI Chief), put together a fantastic study of moving solid business fundamentals into the age of crowdsourcing, digital communities and going viral. Let's cover four quick concepts this week:
1. Think exponentially, not linearly: When asked how we grew our investment consulting firm an average annual growth rate of 36% for two decades, my first answer has always been, "Because we simply believed we could," and my second answer has been, "Because we didn't know we weren't supposed to." So much of business, and life, is simply believing it should be so. You hear this belief system described as the lens of the camera, laws of attraction, or simply our worldview. Once we believe this to be our paradigm, we will readily adopt strategies congruent with this viewpoint and not waste time on actions inconsistent with our mission.
Ismail, Malone & Van Geest define the Exponential Organization (ExO) as one "whose impact (or output) is disproportionally large - at least 10x larger - compared to its peers because of the use of new organizational techniques that leverage accelerating technologies." While traditional companies can only achieve arithmetic outputs per input, ExOs achieve geometric outputs. You are likely familiar with the sixty-year history of Moore's Law which states price/performance is cut in half every eighteen months (think flat screens, laptops, cell phones). Now, the business power of the internet has even cut this halving to nine months, and in some industries even one month!
Coca Cola thinks linearly; for each new worker hired, factory built, and new customer acquired, we will sell x cans of Coke. ExOs sell more cans of Coke without adding anything into the input side of the equation. [Oh yeah, remember that when you are growing so much faster than everyone else, the C-Players will scream that you must be cheating. So be ready for it, and just roll with it]. Now, stay with me.
2. Follow Zero Experts: You know I couldn't resist telling you these strategists also believe nearly every expert is wrong and urge us not to waste our time, or brain power, following the experts [I knew they were JAM VIEWS readers!]. Eastman Kodak invented, and then rejected, the digital camera before declaring bankruptcy in 2012. McKinsey & Company advised AT&T not to enter the mobile phone business, predicting there would be fewer than one million in use by 2000 [There were 100 million in use by 2000 - a 99% market miscalculation, not to mention the biggest opportunity in modern times].
This growth is blowing away every prediction of government technocrats and Wall Street analysts. The same 3D printer which cost $40,000 in 2007 now costs $100. The same drone which cost $100,000 in 2007 now costs $700. Solar energy cost $30 per kWh in 1984 and now costs $0.14 per kWh. Medicine's full body scan cost $10,000 in 2000 and now costs $500. Humans cannot predict these trends or astronomical results. Get comfortable with the fact you do not know what you do not know, and you will perform well beyond the masses following the experts.
3. Outsource Everything: In Building Special Companies we teach the participants to outsource everything, as opposed to balance sheets and income statements full of fixed expenses which I, mistakenly, had before. Today, Mr. Ismail thinks we would be crazy to have any employees or other assets in our corporations. We just need to borrow everyone else's stuff!
Contract out all employees, and better yet have your crowd and community do all the work for free. These people who believe in your mission have current skills (no constant retraining required), and they are proven much more capable than captured talent experts. In 2011, Allstate Insurance, who employed 40 of the best actuaries and data scientists money could buy, ran a public contest to see if anyone could improve on its claims algorithm they had carefully optimized for six decades. Within three days, 107 teams did it better, and at the end of three months, the algorithm had been improved 271% [hopefully they fired the 40 experts!].
4. Acquisition Cost Zero: Use your community to bring customer-acquisition costs, and even service costs, to zero. Nurture the community by providing them inspiration (a Massive Transformative Purpose), and then listen and give back to your group every day. I have always preached, "People just want to be inspired!" Most people lead lives of "quiet desperation," but if you can engage their minds and their hearts, they will blow you away with their creativity, effort and persistence.
Help people become friends. Connect your peer-to-peer platforms. Everything and everyone is rated, internally in the company and externally in the community. Join the thousands of other communities already out there with compatible missions. These groups sell your products or services because they simply want to, and it does not cost you a penny. They even take over your customer service functions as your raving fans helping each other answer questions and fix problems in this peer-to-peer world. Your community will now handle your idea generation, funding, design, distribution, marketing and sales. Have you ever participated in a Kickstarter or Indiegogo crowdfunding campaign? The site collects all pre-orders for a new product, and then if enough people purchase, the site releases the money to the developer to now create the product. Entrepreneurs validate market demand before building the product!
Did you know Hyatt has 45,000 employees spread across 549 properties and was previously valued less than Airbnb with just 1,324 employees located in a single office.
Expand your mind! Have a great week!
"In short, a five-year plan is a suicidal practice for an ExO...implement a one-year plan (at most) and watch it all scale while course-correcting in real time." - Ismail, Malone & Van Geest