How To Build an Exponential Organization

A unicorn is a company that “rapidly gains to a valuation of a billion dollars and beyond.” These companies seem to occur more frequently than ever, lately. How do they do it? Maybe it’s because behind-the-scenes, their business is an exponential organization.

An exponential organization is a nontraditional business that takes off in exponential numbers without the overhead of a typical business model. Think Uber and Airbnb. It feels like they were immediately successful.

Uber doesn’t own the cars, and Airbnb doesn’t own any of the homes. This leaves them with an over-abundance of resources and opportunities with little overhead and costs associated with the business.

Exponential Organizations

The term was first introduced by Salim Ismail, Michael Malone and Yuri van Geest with other guest writers in the book Exponential Organizations: Why New Organizations Are Ten Times Better, Faster, Cheaper Than Yours (and What to Do About It).

Many organizations that use a linear approach are limited to the resources that are available. With an exponential model, there is no limit because there are unlimited opportunities and resources. Ismail goes into detail in this video.

Top 10

ExO Works offers a list of the top 10 exponential organizations. They shouldn’t surprise you

1. Github
2. Airbnb
3. Uber
4. Indiegogo
5. Google
6. Pinterest
7. Kaggle
8. Tumblr
9. Quirky
10. Shapeways

 If you want more, here’s a list of 100.

Why Build an Exponential Business?

Take Airbnb as an example. They have unlimited resources because they do not own the homes that they rent out.

On the other hand, Holiday Inn has to spend money on property, employees, and maintenance. This creates linear growth. Airbnb doesn’t have any of the overhead or cost that limits them. They are valued at $20 billion and have thousands and thousands of listings in cities across the country.

Uber and Airbnb are in the middle of a win-win-win situation. You have the company facilitating rentals, you have the renter that is listing the home and receiving profit for doing so, and you have the consumer that is renting the home and getting a better deal on a rental than you’d get at a hotel and it’s a unique experience.

The real question here is “why not?”

How to Create an Exponential Organization

ExO Works has also established a list that explains how to build this type of business.

• Select a Massive, Transformative Purpose (or MTP) like Google’s “Organize the World’s Information or Quirky’s “Make Invention Accessible”. All ExOs we’ve found have such a mission.
• Join or create relevant communities (see Meetup!). Chris Anderson’s DIY Drones community is a great example. Over 50,000 drone enthusiasts participate. In the most advanced companies, the community drives everything but the purpose.
• Compose a founding team (optimally four people). We recommend a visionary, UX expert, engineering guru and a business/finance expert.
• Select a breakthrough idea that delivers a minimum 10x improvement over the status quo. Let’s note that we don’t begin with the core idea — that way you’re not tied to a particular solution, but rather the problem space.
• Build your Business Model Canvas (see Lean Startup). This simple process generates nine essential elements to consider in the business model (including partnerships, channels to market, USP, etc).
• Find your Business Model — mainly, how will you make money? Many startups today deliver new business models as a way to compete against legacy companies (Netflix being a prime example).
• Build the Minimum Viable Product (or MVP — again, see Lean Startup). What’s the smallest feature footprint that allows you to get to market and get feedback from users? Note for many successful web products (e.g. Twitter, Foursquare, Facebook), their initial product was quite flaky — the design flawed and the user interaction questionable. But they iterated rapidly with first customer data and were ultimately successful.
• Validate marketing & sales channels. Groupon spent 18 months in one city getting the sales and marketing footprint just right. Then they quickly replicated that in dozens of cities.
• Organize so that core mission-critical functions are occurring outside the core organization (e.g. Uber’s matching of driver and passenger is not handled by its core team).
• Aim to be a platform. Successful ExOs (Apple, Google, Amazon) are all platforms. Companies that didn’t achieve that (Yahoo, Blackberry, Nokia) ended up in trouble.

Takeaways

Consider and take some of these strategies and techniques into account when you are building your next business. John Elkington quotes Tony Seba’s Clean Disruption of Energy and Transportation:

 “The age of centralized, command-and-control, extraction-resource-based energy sources (oil, gas, coal and nuclear) will not end because we run out of petroleum, natural gas, coal, or uranium. It will end because these energy sources, the business models they employ, and the products that sustain them will be disrupted by superior technologies, product architectures, and business models.”

The exponential organization is the business model of the future and has already started to interrupt more traditional structures. Take advantage of it now, and build the future of business.

I Can Help

David Rose was quoted saying, “any company designed for success in the 20th century is doomed to failure in the 21st”. In anticipation of this movement, I’ve been one of a few folks first to work with ExO Works to help them design, build, and formulate a process on how to implement these principles within existing organizations and new startups.

Find out your organization's exponential score by clicking here (if you are brave - post your score in the comments) and then reach out to me to discuss how your organization can build or become an ExO organization.