They call them Exponential Organizations or ExO's and they are a new breed of organization that are disrupting every market, geography and industry. Who calls them that? Singularity University, which is a new type of university funded by Google, LinkedIn, X Prize Foundation, and AutoDesk to name a few. Their mission: Solve problems that impact at least a billion people. That's a big task, and in order to accomplish it, they had to do some pretty heavy research on some of the fastest growing companies ever to grace the earth. Their findings are extremely interesting.
For the last couple hundred years, traditional business structures have put an organizational/legal boundary around an asset or a workforce and ‘sold’ access to that scarcity. However, just in the last few years, a new breed of organizational structure is emerging – they are called Exponential Organizations (ExOs). These new organization structures are leveraging a newly available set of externalities like big data, community, the crowd or accelerating technologies and by doing so, are performing a minimum of 10x better than their peers in the same space.
This democratization combined with the reach and collaboration from mobile technologies are allowing these new org structures to scale at unprecedented rates.
I first heard of the ExO concept from Salim Ismail, the director of Singularity University and former head of Yahoo’s incubator, who gave a jaw dropping speech at Growth Summit in Las Vegas where the top minds in the world meet once a year to grow.
Salim Ismail spent the last three years interviewing and researching the ninety top entrepreneurs and visionaries including Marc Andreessen, Steve Forbes, Chris Anderson, Michael Milken, Paul Saffo, Philip Rosedale, Arianna Huffington, Tim O’Reilly and Steve Jurvetson. He also investigated the characteristics of the 100 fastest growing and most successful startups across the world, including those that comprise the Unicorn Club (Aileen Lee’s name for the billion-dollar market cap startup group), to tease out commonalities the companies used to scale. His findings are astounding and I have summarized them below:
What is an Exponential Organization (ExO)
An ExO is an Organization 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.
The best way to understand what they are is to give you a few examples:
X Prize creates competitions to challenge, leverage and motivate the community in order to solicit radical breakthrough ideas. The Ansari X Prize, which rewarded $10 million to the first organization to launch a reusable manned spacecraft into space (twice within two weeks). They had Twenty-six teams from around the world participate. Virgin Galactic is currently using the winners design to enable commercial space flight, which will cost $250,000 a ticket and is planned for the beginning of 2015.
Founded in 2008, Airbnb currently has 1,324 employees and operates 500,000 listings in 33,000 cities. However, Airbnb owns no physical assets and is worth almost $10 billion. That’s more than the value of Hyatt Hotels, which has 45,000 employees spread across 549 properties. And while Hyatt’s growth is comparatively flat, Airbnb’s number of room-nights delivered is growing exponentially. At its current pace, Airbnb will be the biggest hotelier in the world by late 2015.
The Airbnb for cars converts private automobiles into taxi’s. Uber has no assets, no workforce (to speak of) and is valued at almost $40 billion, thirteen times its value of just two years ago.
Over 12,000 TEDx events have been held within the last five years. More than thirty-six thousand TED and TEDx talks are available on the web and have been viewed almost two billion times. They did this by leveraging TED members where any TED member can create a TEDx franchise event in his or her own locale. They went from an annual gathering of dilettantes to one of the world’s most popular and influential forums for the exchange of ideas.
GoPro has more than seven hundred employees (it had just eight in 2010) and is valued at $3 billion. In 2013, GoPro sold almost 4 million cameras and grossed $985 million (up 87.4 percent from 2012). GoPro is currently ranked No. 39 on Fast Company’s World’s 50 Most Innovative Companies list, and the company went public in July 2014, a culmination of a remarkable run. Their famous ‘How will you GoPro’ campaign inspired users from all over the world share footage on GoPro’s website and FB page. Viewers see videos and are inspired to create their own.
An open source coding and collaboration tool and platform, GitHub has literally transformed the open source environment. The core functionality of GitHub is “forking” – copying a repository from one user’s account to another. This enables programmers to take a project they don’t have “write access” to and modify it under their account. If they make changes they’d like to share, they can send a notification called a “pull request” to the original owner. That user can then, with a click of a button, merge the changes found in the new repository with the original repository.
Proctor & Gamble take about 300 days to go from a new product idea to a Walmart shelf. Quirky, achieves that same result in 29 days.
Google Ventures has invested in more than 225 portfolio companies encompassing all stages and industry sectors, including such rising stars as Uber, Nest, and Cloudera. In an extremely short period it has already completed more than twenty successful exits, with returns far exceeding market averages for venture capital funds. To find potential companies, Google Ventures leverages Google’s 50,000 employees. Employees are encouraged to refer stealth startups or founders; if an investment is ultimately made, the employee gets a $10,000 finders fee.
Principals of Exponential Organizations (or ExOs)
▪ ExOs are able to achieve performance improvements of 10x or more
▪ ExOs leverage one M.T.P (described below)
▪ ExOs leverage one or more S.C.A.L.E. externalities (described below)
▪ ExOs leverage one or more I.D.E.A.S. internal mechanisms (described below)
Massive Transformational Purposes (MTP)
ExOs by definition, think BIG. After reviewing mission statements of this rare breed of ExOs they encountered statements of purpose that might have seemed outrageous at the time of inception.
TED: “Ideas worth spreading.”
Google: “Organize the world’s information.”
X Prize Foundation: “Bring about radical breakthroughs for the benefit of humanity.”
Quirky: “Make invention accessible.”
Singularity University: “Positively impact one billion people.”
None of these state what the organization does, but rather what it aspires to accomplish. They aim to capture the hearts, minds, imaginations, and ambitions of those both inside and (more importantly) outside the organization.
The MTP is so inspirational that a community forms around the ExO and spontaneously begins operating on its own, ultimately creating its own community, tribe and culture. Think of those lines outside the Apple Store or the waiting lists for TED’s annual conference.
It’s an effective attractor and retainer for customers and employees but also for the company’s entire ecosystem (suppliers, partners, developers, startups, hackers, etc.). As a result, it lowers the acquisition, transaction and retention costs of these stakeholders.
S.C.A.L.E (External Attributes)
Along with an MTP, ExOs leverage (1-2) of the five key externalities, represented by the acronym SCALE:
Staff on demand
Rather than ‘owning’ employees, ExOs leverage external resources to get work done – even for mission critical processes
Community & Crowd
Most ExOs are leveraging their community or the general public to scale. TED uses its community to run TEDx events – over 8000 have been held in just five years
Algorithms
As the world turns into data and information, ExOs are leveraging Algorithms, including Machine Learning and Deep Learning to get new insights about their customers and products
Leased Assets
Rather than trying to own assets, ExOs access or rent assets to stay nimble. Uber doesn’t own its cars, AirBnB doesn’t own hotel rooms.
Engagement
A critical mechanism to scaling their workforces, gamification and incentive prizes are extensively used by ExOs to achieve scale
I.D.E.A.S (Internal Attributes)
To manage these externalities and maintain order, ExOs use (1-2) of the following five internal mechanisms to harness the scalability of the external SCALE elements. They are represented in the acronym IDEAS:
Interfaces
When implementing the above SCALE elements, ExOs use customized processes to interface with these externalities. For example, Quirky has custom processes to manage its community of 600,000 inventors. Uber has unique ways of managing all its drivers
Dashboards
In order to track and monitor an ExO, real time metrics are implemented to track performance. Internally, many ExOs track individual and team performance using the technique Objectives & Key Results (OKRs). This discipline is used by Google, Twitter, LinkedIn and many hyper growth organizations
Experimentation
To keep constantly tuned to the external world, ExOs use the Lean methodology or other techniques to constantly experiment with new ideas and processes – they are culturally risk enabled and their processes are constantly being tweaked with fast feedback loops.
Autonomy
ExOs devolve authority to an extreme level of decentralization. In many cases, a member of the community has full ability to act on the behalf of the core organization (e.g. TEDx organizers). Decision making, even in key mission critical functions is distributed to the edges of an ExO
Social
All ExOs leverage collaborative tools, file-sharing or activity streams to manage real time, zero latency conversations across the enterprise.
Summary
When running a business, you are constantly optimizing the cost of generating Demand and the cost of managing Supply. The internet, for the first time ever, allowed businesses to drop the cost of demand generation exponentially via online marketing and referral marketing – in fact, if you achieve a viral loop, your acquisition cost goes fully to zero.
For the first time ever, ExOs are dropping the cost of supply exponentially. Uber has very low marginal cost to add a new car to its fleet. AirBnB can add a hotel room for almost zero. Google’s marginal cost to running an extra search query is almost zero. Waze has reached 50 million users solely by word of mouth and accesses each one’s GPS to provide accurate traffic prediction. The rate of change in the world today is so high everywhere that you now must assume that someone will disrupt you, and often from a direction you least expect. This applies to every market, geography and industry.
The question then becomes, how do you stack up with ExOs? Are you a startup that has no marginal cost of supply and can outperform larger companies by 10x?
If so, we want you to apply to Seed Sumo. Whether you are a team surrounded by a concept trying to find a business model, or a team that has a business model and need capital and advisors to help you rapidly scale our accelerator and seed fund is looking for ExOs.