Before you even answer the question above, think about what it means to be exponential… does the cliche phrase, “hockey stick growth” come to mind? You’re probably thinking: “what does this have to do with me, my company or industry?” Well, a lot! In today’s fast past, information-driven economy, competitors are going to come from every corner (or basement)!
Just think, a book company (Amazon) is now competing with grocery stores, trucking companies, data centers, music companies, the film industry, tablet companies, and the list goes on…
The reason this is important to you: if you are dragging your feet to put together a 5-7 year exit plan, how confident can you be that your company (or industry) will even be relevant in the coming years EVEN IF you put together a perfect exit plan?
The speed of change
With every technological evolution, the potential speed of change in a marketplace gets faster and faster. Just look at the number of unicorn companies (companies worth over $1B) coming up each year. In 2015 alone, 70 startups joined what was once thought of as an elite club. Many of these startups were just a few years old. What once used to be called a unicorn is not so rare and mystical anymore.
Take a look at the graphic below to show the number of companies that are have joined this club over the last 5 years…
As a business owner you simply must understand this rate of change. We can no longer project our vision of the future in linear thinking (applying the same rules to the future based on the past). I mean think about it… the iPhone has just hit it’s 10 years anniversary!
If you think your industry isn’t technology-driven, you’re wrong. Sure, you might not be competing with the unicorns in Silicon Valley, but EVERY industry is influenced by the innovation of the human race.
As I mentioned in the introduction, and the graph below from an awesome Deloitte Blog shows, industries will blend together as technology allows for competition and leverage like never before.
What once used to take millions of dollars in servers to start a software company now only takes $99 dollars and an Amazon Cloud Services or Microsoft Azure account. Therefore, a startup with minimal costs and NO BAD HABITS or DEBT can rapidly change the rules and the game in your industry.
All this is explained brilliantly by the book (the clue is in the title!): Exponential Organizations: Why new organizations are ten times better, faster, and cheaper than yours (and what to do about it)
Is the 5-year exit plan under threat?
In the Exponential Organizations book, the author Salim Ismail challenges the norm of building a 5-year strategic business plan. Exponential organizations and technology are ripping up the rule book and what once used to be a productive way to get your company on track and marching in the same direction can now be a devastating way to create biases and judgements against new ideas that could be the future of your company or industry.
This can become extremely paralyzing as a business owner. You can quickly argue that there is no sense in planning if you can’t even predict what is going to happen at the end of the year
So what can you do?
Plan for the things that YOU CAN CONTROL! The number one thing that will make you more nimble, and able to withstand the exponential change and competition, is having a solid understanding of your numbers and timing. You need to be able to answer these questions:
- How much is your company is worth?
- Who are your potential buyer(s)?
- Why would someone buy your company?
- How long do you want to be in the business?
- How much you need to keep (or sell) the business and be financially stable?
If you know your numbers and what’s important to you in your future life vision, then you are set up to focus on the future strategy of your company and industry without having to answer these questions on the fly. The last thing you want is to not know how a crucial decision for your business impacts the questions above. The planning you put in place acts as the guide for future decisions… new products, investments, markets, etc.
How can you think like an Exponential Organization?
The Exponential Organizations book takes a different look at your company mission statement and suggests you replace it with an MTP (massive transformative purpose). Google’s MTP is “organizing the world’s information”, while TedEx’s is “ideas worth spreading”.
The book outlines 5 key areas that a business needs to do internally in order to give themselves a chance of keeping up with the pace. This is the IDEAS strategy, which stands for:
- Interfaces
- Dashboards
- Experimentation
- Autonomy
- Social technologies
For external/marketplace activity, the clever acronym is SCALE:
- Staff on demand
- Community & crowd
- Algorithms
- Leveraged assets
- Engagement
A detailed summary of the book and the concepts above is HERE
Looking to the past is a thing of the past
The goal is that you see your company in the context of a marketplace that could change rapidly, and that you have the right procedures in place to grow exponentially if the technology is there to empower you. Simply looking at your past results won’t cut it anymore.
Take a look at the graph below from Frank Diana’s blog “The Future Agency“, where the future scenarios show how each category of new technology creates new products and services.
Here is a crazy example for you…
- in 1900 the population of the US was around 62 Million and 29.4 Million of those people were farmers (38%)
- in 2016 the population of the US was around 324 Million and less than 2% of the population is tied to agriculture
Do you think that the people that were farming in the 1900s told people that everyone was going to be homeless in the future as tractors came out? New technology breeds new jobs and new industries.
The changing meaning of ‘value’
Even our view about the present can look a bit outdated against a backdrop of exponential technologies. For good reason, we constantly guide people towards the 8 key drivers when we talk about building value for a business, but business owners must be aware that the biggest factor affecting your future value could actually come from outside market forces. Your company’s market share could be wiped out if the competition understands exponential technologies better than you do.
Get your house in order, fine-tune your plan, and look to the future so you can stay relevant!
Still don’t believe us?
Uber was valued at $17B when they wrote the Exponential Organizations book. Now, just two-and-a-half years later, Uber is thought to be worth $62.5B. Do you think that is exponential?!?
Another thought-provoking stat from the book relates to the average shelf life of an S&P 500 company. In a short space of time the average length of time a company stays in the S&P 500 has plummeted from 60 years down to just 15. The book then goes further and predicts that in 10 years’ time, 40% of Fortune 500 companies will not even be around because of hyper competition from exponential organizations.
Picture your own bankruptcy and take action
A great way of looking at this is to try and build the company that you know would put you out of business if they were your competition. Always being “one step ahead” is a bit of a cliche, but you’ve certainly got to do something NOW for the sake of your future.
If there’s one takeaway you can get from all this, it’s that no one can count on their market position forever. Either you gear yourself up to ride the exponential wave, or you stay in denial until the wave pulls you under.
The Bottom Line:
Just because technology and competition is growing faster and stronger, doesn’t mean that the financial rulebook goes out the window. Look what happened during the .com boom and bust. People stopped thinking like proper business people and started thinking more like crazy madmen, i.e. profits didn’t matter as much as online branding did.
Your exit plan should guide your decisions and how much risk or time you are willing to put into your business. For example: if you want to be out in 3 years and sell to your kids but something comes up that requires a million dollar investment that you won’t get out for 5 years and would kill the cash flow of the company… THINK TWICE!
Watch it in action:
If you want to see the the author, Salim Ismail, speak about these ideas and more about Exponential Organizations, watch this YouTube video HERE
For a full list of the Exponential Organizations Top 100 of companies, go HERE.