If you are not disrupting your business or industry, someone else is – Salim Ismail
Over the past few years Digital Unicorns, Disruptive Innovation, and Exponential Organizations became a part of the mainstream business lexicon. A lot is written about rise of the Unicorns and Exponential Organizations (ExOs), and how they have disrupted various fields with their innovation, and what others can learn from them.
In this blog, I would like to present some common characteristics of successful Unicorns/ExOs, and show a clear direction for existing ISV’s (software businesses) who wish to embrace exponential innovation and scale like Unicorns. Rise of the Unicorns Unicorns refer to venture-funded, privately held startups that are valued at $1 billion or more. According to WSJ and Dow Jones VentureSource, as of December 2017, there are 168 companies in The Billion Dollar Startup Club, and the top-10 list includes the following startups, some of which are globally known household names: Source: Dow Jones VentureSource and The Wall Street Journal Is there a secret recipe for the success of Unicorns?
What’s the secret behind their success? How are they able to scale so rapidly? What’s their approach to innovation, that made them standout? How are they organized, and how are they able to innovate continuously? Small in size, typically between 11-500 employees. It is safe to draw an inference that the small size helps Unicorns to stay flat and nimble, allows their executive management to take swift decisions, and stay in control of strategic initiatives. Led by serial entrepreneurs, who bring a risk-taking and fail-fast culture that emphasizes the importance of anticipating potential constraints of an innovative idea, and testing its viability, as early as possible. It is important to note that the character traits of risk-taking, and entrepreneurial approach are far more important than merely being a serial entrepreneur. Funded by VCs, which creates enormous pressure to scale and succeed quickly, to provide a profitable exit to the investors. The key takeaway here is not the fact there are external investors who expect a return, but the positive impact created by VCs in adopting a disciplined, market-focused approach with emphasis on speed and viability. Have a narrow or niche focus, which enables them to avoid diffusion of scope, preserves executive management bandwidth, delivers targeted innovation with quick, focused effort. This has a direct impact on people, as the narrow focus of the company also means that every employee has a sense of direction and clarity of purpose in terms of what their role is.
“ It is our thesis that Unicorns have worked out how to scale their organization structures in a completely new way. Our name for this is Exponential Organizations or ExOs. The basic metric that we have established is that ExOs scale at a minimum 10x better than their peers in the same space.”Research indicated that Unicorns not only have a product or service that meets genuine market demand, but they are also exponential organizations, which are at a minimum 10x times better than their peers in the same space, or offer 10x times improvement on status quo.
Similar to the study undertaken by HBR on Unicorns, this study of ExOs, uncovered many traits that are common to both. Research by Salim’s team indicated that there is a considerable overlap between them, and of the top 100 ExOs, 35 are considered Unicorns (I have used ExOs and unicorns interchangeably throughout this blog). This influential study has shed light on some key characteristics that are common across the bulk of ExOs, and discovered that they:
have a Massively Transformative Purpose (or mission) to which they latch on with laser-sharp focus. It could be a quirky idea, or a truly forward looking and disruptive break through innovation. have an exponential mindset and seek to deliver at a minimum, a 10x improvement over their peers or status quo, which helps them to choose the problem space, and not the problem or solution itself. In other words, the idea must be a starting point, and not the final solution. leverage exponential technologies such as AI, ML, VR, AR, robotics, digital biology and other emerging technologies to create disruptive, and innovative solutions start small with a core group make heavy use of social collaboration tools experiment heavily and take risks are organized around autonomous teams with the right people handling the right job, each being world class on its own, and working independently to a high degree
“ demonstrated that there is a new way of doing business, that uses a combination of culture, technology, needs, and incentives to deliver innovative digital solutions at lightning speed, an approach defined aslightning innovation” Source: Harvard Business reviewIf you look at some of the successful Unicorns, it is clear that they targeted established domains and markets with innovations that outperformed established way of doing things, and more importantly didn’t involve huge technology risks, and often delivered immediate returns.
This offers some valuable lessons for existing ISVs, who in spite of having a high-level of technology and software competence, are unable to think or scale like Unicorns. Very often, like other successful old economy businesses, ISVs are also organized in a hierarchical manner with linear processes. Unfortunately, this approach forces even successful ISVs also to predominantly focus on meeting immediate or prioritized customer needs, think narrowly, and act incrementally. It is amply clear that in diverse domains, startups reaped rich dividends with lightning innovation, and there is no reason why established ISVs can’t emulate a similar strategy. ISVs that wish to break the straight jacket of incremental growth, and explore avenues for exponential scaling, will be well-served by adopting a strategy of lightning innovation with the following key traits:
Think big with an exponential mindset and choose a transformative purpose Engage experienced leadership with sharp focus Embrace risk and learn to fail fast Use new-gen paradigms such as Business Model Canvas, Design thinking, and Agile execution Use platform thinking and target to serve large markets, domains, and business ecosystems (customer of customer and supplier of supplier) Think about business models that can achieve near zero cost of incremental supply Target innovation in established domains by coming up with new ways of doing old things Scale your organization outside your core team. ex: Matching of driver and passengers, which is a mission-critical function for Uber is not handled by its core team. This enabled Uber to drop the cost of marginal supply (like adding a new car to its fleet) exponentially, laying the foundation for its explosive growth.
– Gary Hamel