Founder'sInvestor'ssimple.Capital(blog)What makes an exponential organisation and why investing in them makes sense

July 15, 20210

What is an exponential organisation? 

An exponential organisation (ExO), is a new business-building model, characterised by intense technological innovation and whirlwind growth. In other words, this is a company that grows at an above-average rate up to ten times faster than comparable companies in the industry. 

But what makes them even more exceptional is they are also organisations that manage with considerably fewer resources, because of new forms of organisation and the use of new, primarily digital technologies. 

Every ExO shares five external characteristics (SCALE)

  • Staff on demand

Often ExOs maintain a small, permanent workforce that’s diverse, creative and flexible, while hiring contractors when needed.

  • Community and crowd 

Maintaining a community and a crowd both lower the costs and risks of doing business.

  • Algorithm 

Learn from Google and how they became the world’s leading search engine through algorithms.

  • Leveraged assets 

It isn’t necessary to own assets anymore just to access them. While some companies still need to own some assets (like Amazon owns warehouses), if a company is information-based, the situation is different.

  • Engagement 

This is crucial for an ExO. Networks, games, competitions and positive feedback loops are all ways of engaging people.

ExOs also share certain internal characteristics, which should support the company’s external ones (IDEAS)

  • Interfaces 

Connect the SCALE externalities such as your community with the company’s internal workings. ExOs need interfaces to manage work and projects and send them into the world. 

  • Dashboards 

These allow people in an organisation to access data in real-time. 

  • Experimentation 

The biggest risk for an ExO is not taking any risks, so ExOs experiment to succeed.

  • Autonomy 

The ideal ExO employee is comfortable with autonomy. 

  • Social 

Social technologies keep communication channels open. More communication allows for greater transparency, and importantly, this keeps the organisation connected to its massive transformative purpose.

ExOs don’t have a five-year plan

Instead, they rather have a Massive Transformative Purpose (MTP) that guides the organisation and then they use real-time dashboards to make constant changes.

An MTP describes a higher purpose which all company efforts serve. People find purpose in ‘local meaning’, meaning people find purpose in observing and understanding the direct implications of their job, in terms of precisely who it influences and how.

An MTP charts an ExO’s aspirations. It outlines an organisation’s higher purpose, showing what it stands for.

How can early-stage start-ups best position themselves as ExOs?

Early-stage companies have a massive head start on their legacy counterparts because they are not yet at the point where culture is ingrained and no legacy is entrenched that needs to be unlearned. 

They can aggressively chase their MTP, and they can build themselves nimbly as an ExO from the start, leapfrogging larger companies. 

The cost of technology is dropping so fast that the bar to scaling quickly has dropped to near zero. Anyone can innovate and bring a product to market quickly, iterating as they gain an audience or customer feedback. 

Why make the exponential investment choice? 

Even though the information-based world is now moving exponentially, the organisational structures are still linear and traditional, which provides a sound basis from which experimentation can thrive. 

Innovative organisational structures also allow for constant experimentation with new ideas and rapid learning loops.

The process of digitisation supports rapid scaling by increasing access or sharing of:

  • people
  • money
  • assets
  • resources.

Below are some business models behind the best exponential organisations:

ExO Business model Market capital (USD) Year founded
Netflix Subscription to other company’s media and proprietary media $79.1 billion 1997
Google Advertising based on search $676 billion 1998
Dropbox Subscription fees on server space $10 billion 2007
Evernote Subscription fees on server space $205 million 2008
GltHub Subscription fees on server space $2 billion 2008
Airbnb Brokerage fees on latent capacity in accommodation $29.3 billion 2008
Uber Brokerage fees on latent capacity in vehicles $68 billion 2009
Pinterest Advertising based on social media $12.3 billion 2010
Delivery Hero Brokerage fees on delivery services $5 billion 2011
Snapchat Advertising based on social media $19.3 billion 2011

Key Takeaways

The overall idea of exceptional organisations remains a valuable guideline for setting up companies for growth. It is the foundation to become and/or remain agile and be prepared for the challenges of the digital age. 

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