Monday, October 4, 2010

10X Your Business

Often when I meet with a startup I will ask them to put aside their existing product/distribution roadmap for a minute and brainstorm around a simple question -

Question 1: "What circumstances would lead to a 10X increase in the value of your product or business?"

Most product and distribution roadmaps are incremental.  Do x, then y, then z, each of which has a linear increase in the value of the product or company.  I think it is good to periodically get out of that way of thinking and ask what sorts of deals, adoptions, or customers would completely change the game for the company.   These things should be at least borderline realistic - i.e. if you devoted a small set of resources, the stars aligned perfectly, and luck went the right way, it might, just might, work out.  But you will never know if you can make something amazing happen if you don't think audaciously and actually devote some small subset of resources to just go for it.

As an entrepreneur or business manager, you should periodically ask yourself, what can create a big step function in company or user value?  And then you need to figure out, how can I execute that 10X step?

Question 2: "What can you realistically *do* to accomplish the circumstances that will 10X your company?"
  • Can you dedicate a person to fly out and camp out for the next 6 months until you close that company-making deal?
  • Can you spend all your funding on acquiring users and manufacture a network effect?
  • Can you lobby for a partnership in a company's home headquarter's newspaper or turn their users into a lobby for you on Twitter and Facebook in order to make an impossible deal possible?
Examples of things that 10X'd Companies:
  • AOL/Apple deal in the 1980s.  In the 1980s, Steve Case was on the marketing team at Quantum Computer Services (later renamed AOL).  The QCS management sent Case to stake out Apple offices and asked him to not come back until they had an Apple deal.  It took many months of living out of a hotel room, but Case eventually sealed the deal.
  • PayPal paying $10 a user.  PayPal raised tens of millions of dollars of funding but its users base was not growing as quickly as they would have liked.  Rather then sitting on the money and waiting for something organic to happen, PayPal's leadership decided to make a bold bet - spend a large portion of the funds they raised ($10s of millions) buying users in order to bootstrap a network effect.  The company went on to go public before being acquired by eBay.
  • Microsoft/IBM deal.  Microsoft famously told IBM they had an operating system when they didn't in order to win IBM's business.  They then scrambled to find an OS they could quickly license from another software developer.  A number of lessor entrepreneurs would have said "sorry, we can't help you".  Of course, within a few years the OS franchise became the foundation of Microsoft's meteoric rise.
  • Google/Yahoo! deal.  Yahoo! outsourced search to Google and allowed Google branding on the Yahoo! homepage.  This lead to two outcomes: (a) Google had a massive spike in both traffic and data that is could use for analytics and to refine its search engine (b) The Google branding on the Yahoo! site caused non-early adopters to become aware of Google as a brand and drove significant traffic directly to the Google site.  Since Yahoo! paid Google for the service, it also partially funded Google as a business.
  • Zynga raising a crapload of cash for media buying and "overpaying" for social gaming startups.  When Zynga got started there were dozens of other social gaming startups.  Zynga changed the game for itself by realizing scale is what would cause it to win.  Zynga raised large amounts of money to buy scale - both via media buying (ads) as well as via buying lots of small startups for more then its competitors would pay (by projecting the future value of the assets, vs current value).  One of these acquisitions turned into Farmville, their core franchise.  All the other startups that could as easily have been Zynga?   99% of them are acquired for small change or are dead.
What are other examples of companies making unexpected 10X moves?  Let me know in the comments.

Related post you might find interesting: Is your startup a cash or equity business?

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