Look, if you had one shot, or one opportunity
To seize everything you ever wanted, in one moment
Would you capture it, or just let it slip?
Eminem
Know Your Math - Carlos Ochoa
It seems to be fashionable to talk about exponential growth. We generally associate it with atypical growth and assume that everything that grows fast is exponential.
According to Wikipedia, the only source of knowledge in the universe, "The expression exponential growth is applied to such a magnitude that its variation over time is proportional to its value, which implies that it grows faster and faster over time." To put it simply, the exponent increases with time, generating a graph that in Silicon Valley we know as "hockey stick." When the growth of a company generates that graph, we say it has exponential growth.
Only the green line has exponential growth.
The blue line displays which type of growth?
a) Cubic
b) Linear
c) Geometric
The answer at the bottom
The digital economy, in particular "Cloud Economics," is what has allowed us to accelerate the sales, adoption, and delivery processes of our companies. Thanks to the existence of the Cloud, the speed of connection, and Moore's Law, some technology companies manage to generate exponential growth charts and have set the standard for new players. Slack, Facebook, Google, and recently Zoom, are some examples.
Several years ago, the impressive graph was the speed with which Facebook reached one million users compared to other media. Today, we talk about millions of followers on different platforms and viral growth (which is exponential). Cloud Economics has already managed to generate more exponential growth phenomena than any other technology, putting the word “exponential” in our business lexicon.
If you want the opportunity to generate a company with exponential growth, these eight principles are the minimum you have to follow the achieve a hockey stick graph.
1. Global first - Being global first is not relative to the solution, but rather relative to the problem you want to solve. If the problem you want to solve in your community is the same problem existing at a national level, then your company has the potential to be a national company. If the problem to be solved is also a global problem, your company is a potential global company and therefore more likely to generate exponential growth. Focus on the problem rather than the solution. Knowing the problem is more important than knowing the solution. Note that not all companies have the opportunity to be global, but for those that do, their product is used by a large percentage of the market.
2. Market - By 2024, eight billion people are expected to be connected by an artificial intelligence device that will increase human capabilities in an economy without digital borders. That's the biggest market you can have. To define your market, you have to have facts and statistics. Just because your cousin or boyfriend loves your product doesn't mean they are your market or that you have a real sample of your market. Anecdotes are also not measurable and quantifiable data. You have to know the market, what the statistics are, how much people or companies are willing to spend, what the buying or spending trends are in that segment, and whether or not the demand is growing. When your market doesn't exist, you need more information to cross-reference data from different verticals and decide that the world needs what you're thinking about. The market determines how much you can grow and the speed of adoption determines if your growth is exponential.
3. Scalability and processes - Scalability is the ability to adapt to growth without losing quality. Your product has to be able to grow without being a disaster. The only way to achieve this is through processes, institutionalization, and controls. Don't try to invent the black thread. You need these processes to grow in an accelerated way. Initially, you should do two things correctly: sales/marketing and product. Focus on those two, sell, deliver, learn, and then you can start accelerating your growth.
4. Unit economics and marginal costs - You need to understand how much it costs to deliver your product or service, how much it would cost to grow and when, and if your technology and processes help you make the next product at a lower cost. Remember, you can't fix what you can't measure; therefore, you need to measure, and your metrics have to be those of your vertical or industry. These metrics will be fundamental to your communication with everyone, including employees, partners, investors, and allies. Do not hesitate to invest to reduce your costs and be able to discern between what is cost and what is investment. Everything that allows you to accelerate is an investment.
5. Technology - Software is eating the world. Although this is the first time you see this phrase, almost ten years ago it was coined in Silicon Valley by Marc Andreessen. Today AI (Artificial Intelligence) is eating the world. Only technology will allow you to optimize your unit economics and become truly scalable. It doesn't matter if you are a company of face masks, hand sanitizer, or electric cars, your technology is a fundamental part of your competitive advantages and it has to be good enough to compete globally. Software technology is what has allowed us to generate new and young billionaires. The costs are generally marginal, and the reach is worldwide thanks to the internet. Your technology has to be one of your competitive advantages and yes, everyone, everyone in the company has to master it.
6. Competition - Your competition is all the companies that want to do the same as you worldwide. The question you have to solve is: How can I be better than the category leader worldwide or the category leader in my market? Competition is not bad. It means that there is proof that the market exists, but what will make you and your company be the winner in that market? Take a good look at your competition, steal their best ideas, and generate something better than them, or swim in a different tank. What is your competitive advantage? Once that you know that, get better.
7. Business model - The business model is as important as the business itself; therefore, you have to master your business model, because halfway through, you might have to update it, turn it around, or throw it away. There are great markets, which thanks to an innovative business model generate a clear winner. Take Twilio for example. The business model can be the innovation you need. Look for a business model focused on growth and reinvestment, where your team can make iterations with every customer interaction and thus improve and refine. Take into account that to grow you need money and that comes either from your profitability or from investors. To grow above your margin, you will need external money, either debt or investment, so be prepared for that moment.
8. Team - The founders and co-founders have to know what each of their expectations are for the long term and how they are going to act in cases of success or failure. What happens if you want to fire me? What happens if I want to go to work for another company? What happens if I want to fire you? How much do I get if I leave or if we fight? If there is no money, who gets paid and who doesn't? How do we settle disagreements? These are just a few of a myriad of questions that will need to be addressed and considered. Think of forming a company as getting married and what parenting rules and expectations you establish for raising your child. Your partners are not just people you can work with and like; they have to be people who in the long run share your values. These partners are the ones who generate the culture of the company, and this culture must attract and retain the necessary talent to grow exponentially. If you can't hire at the speed you need, you can't generate exponential growth. If the market determines how much your company can grow, the team determines how far your company can grow within that market. Your goal is to have more people knocking on your door than you can recruit, and the ability to recruit well and quickly is fundamental to accelerated growth.
8a. Advisors - In Silicon Valley, we have a lot of advisors or counselors. Since there are many entrepreneurs who have managed to grow and sell their companies, there are a lot of people with time to advise the new generations. Someone with more experience than you and who does not have an emotional relationship with operations will help you solve many obstacles. Find the best person who can help you in your company and try to convince him/her to work with you. It's a top-down process: if the one at the top of your list says no, you go to the next one, and so on. Yes, you will have to give a percentage of your company, but the benefit is the speed at which you will be able to grow your business with the assistance of someone you, it is priceless. If you are a small company, forget about a formal board of directors. Have monthly meetings where everyone needs to deliver. If you already have a real size company, create a board of directors with professional board members.
Un abrazo
Carlos Ochoa (the wolf)
Want to learn more?
How to create great companies. Mpower Financing
Video English CC on Exponential growth
carlos@ai8ventures.com