PDF Summary:Exponential Organizations, by Salim Ismail, Michael S. Malone, and Yuri van Geest

In Exponential Organizations, Salim Ismail explains how to leverage new innovations in technology and business practice to build hugely successful companies. These companies have almost unlimited growth potential because they profit almost solely from information—a limitless resource that they can use more and more effectively as information technology continues to advance. Ismail is a renowned entrepreneur and business strategist. He’s also the founding executive director of Singularity University, a company that offers executive training and business consulting services.

Our guide will expand on Ismail’s ideas by drawing connections between this book and other popular business books such as Purple Cow and No Rules Rules. We’ll also look at how some actual businesses have put Ismail’s concepts into practice.

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Others argue that these invasions of privacy will lead to other civil liberties being trampled—for example, by allowing police to easily track down protestors, or by punishing people for what they say in the privacy of their own homes. These people warn of the dangers of a surveillance state: a dystopia like the one found in George Orwell’s 1984, where the government watches every person every moment of the day, looking for any signs of rebellious acts or “dangerous” thoughts.

Ultimately, how closely we can be monitored—and what companies or government bodies can do with our data—is a complex issue that must be addressed by lawmakers and public discourse.

Rapid-Growth Companies Thrive on Connections

Now that we’ve discussed what rapid-growth companies are and why they outperform traditional companies, let’s explore some of the specific strategies that rapid-growth companies use. First, we’ll discuss how rapid-growth companies use connection and community to boost their success.

Ismail says that integrating connection and community into every aspect of a business allows it to grow far more rapidly than organizations that don’t do so. While all companies need people in order to function (employees and customers at the bare minimum), rapid-growth companies rely on connecting with people for just about every part of their business models.

Leverage Social Connections to Grow Quickly

It goes without saying that a successful business needs to have customers. However, a rapid-growth company relies not just on loyal customers, but also on a sense of community; in other words, the company becomes part of the customer’s identity. People who feel a sense of community with your company will naturally advertise for you, helping your company to grow much more quickly and cheaply than companies that rely on traditional paid marketing.

For example, consider the rivalry between Playstation fans, Nintendo fans, and Xbox fans—to an outsider, they might all seem to be part of the same community (gamers), but devoted fans of each will proselytize for their favorite console and try to convince others to buy that console (in other words, to become part of that community).

Attract the Innovators

While it seems logical to try to attract as many people to your company as possible, your real targets should arguably be the ones who are actively looking for something new in their lives. Get their attention by explaining how your company is groundbreaking and exciting, and why it might be just what they’re looking for. Once you win them over, they’ll be the ones to advertise you to the rest of the population.

In Purple Cow, marketing guru Seth Godin explains that this is how products and ideas move through a population. Godin explains that new ideas take hold, at first, with a relatively small number of people: the innovators and early adopters, the ones who are trying to find something new. Those people are then the ones to spread the word and get more and more people to purchase the product, adopt the idea, or join the community.

Craft a Bold Mission Statement to Attract Customers

To build a community, Ismail says that a rapid-growth company should have a bold, transformative mission—a commitment to making a positive change in the world. In the age of information, an appealing mission statement can make the difference between exponential growth and immediate failure; there are so many companies in the modern market that people will need a reason to support yours, specifically. People who agree with your company’s mission will become your customers, and they’ll help to bring in other customers as well.

Crafting a Mission Statement

An effective company mission statement should be short and memorable; a few sentences at most. It should also reflect a long-term and large-scale goal: something that will inspire people to join you and stay with your company for a long time.

For example, Tesla’s mission statement is “Accelerating the world’s transition to sustainable energy.” In one sentence, it tells you what the company believes in (renewable energy) and what it wants to accomplish (converting the entire world to new, more environmentally-friendly energy sources).

Imagine if, instead, the company’s mission statement was simply, “Sell electric cars.” While that is what Tesla does, a statement like that isn’t likely to inspire anyone to join the Tesla community or advertise Tesla to their friends.

Remember that a mission statement isn’t set in stone—if you find that your current mission isn’t serving your purposes (or attracting new customers) anymore, don’t be afraid to change it.

Ismail adds that, for the same reasons, it’s practically required for new companies to be socially conscious and to support social justice. While an inclusive, socially conscious mission statement will help your community to grow, a reputation for prejudice or discrimination is sure to drive people away.

(Shortform note: A socially conscious mission statement alone isn’t enough to give your company a good reputation—you need to back it up with socially conscious action. Some common examples of socially conscious actions are making donations to charity, engaging in volunteer work, and making sure that your business practices are both worker-friendly and environmentally friendly.)

Minimize Costs, Maximize Flexibility

Another crucial strategy that enables rapid-growth organizations to outperform traditional organizations is cost efficiency—with modern technology and practices, rapid-growth companies can produce enormous revenue with minimal investment or risk. In fact, Ismail says that an entrepreneur can start a new business for as little as $100,000—in the past, such an undertaking would have cost millions.

(Shortform note: While Ismail says that it can take around $100,000 to start a business, entrepreneur Chris Guillebeau says that you can actually do so for as little as $100. In The $100 Startup, Guillebeau explains that all you really need to start a company is an idea, a website, and a way to process payments. Then, as your company grows, you can ensure that you keep turning a profit by only spending money on things that directly boost your sales and by making sure that you price your products or services appropriately. Price things based on the value your customers get, rather than how much it costs you to provide that product or service.)

Create Small Teams of Experts

One key way that modern organizations can run more efficiently than traditional companies is by hiring as few people as possible and relying on automation for simple tasks. Furthermore, with the internet allowing for remote work, there’s usually no reason for employees to all come together to a shared office. That means there’s also no need for the company to rent or buy office space.

(Shortform note: Although Ismail presents a small, remote team as a cost-saving measure, when you select your staff, make sure that you’re not just looking for the employees with the lowest salary requirements. As Reed Hastings says in No Rules Rules, one of the most important things you can do for a company is to hire and keep only the best employees—at any cost. In other words, use your small, remote workforce as an opportunity to invest more in each employee, rather than as an excuse to spend as little money as possible.)

Having a small, decentralized staff will of course reduce the company’s overhead costs, but Ismail says there are other benefits as well. For example, small teams allow for greater flexibility and greater risk-taking. In other words, it’s easier for a small team to make and implement a potentially risky plan because there are fewer people to win over and fewer possible conflicts of interest or personality.

Flexibility and risk-taking are crucial for any modern company because the world has become too complex to predict, and technology advances so quickly (remember Moore’s Law) that you can’t predict how it will disrupt your industry. Therefore, Ismail says it’s much better to have (possibly risky) products or services with quick turnaround times from conception to sales, and a company that can adapt to changes as they happen, rather than relying on inevitably flawed “safe” models and predictions. In fact, he says that the single riskiest thing a company can do is not take risks—a company that plays it safe is sure to be forced out by a bolder competitor.

(Shortform note: Risk analyst Nassim Nicholas Taleb says that taking risks—putting your Skin In the Game—has numerous benefits besides the chance for reduced costs or increased revenue. First, putting something of your own (like your company, your money, or your job) on the line will keep you focused and inspire you to work harder. However, perhaps even more importantly, Taleb says that taking chances and observing the results is the only way to learn about an increasingly complicated world; direct experience will teach you things that no formal education or predictive model could prepare you for.)

Employees Need Trust and Autonomy

Having a small team also helps you to build an atmosphere of trust. Ismail says that you need to be able to rely on every employee to show creativity, problem-solving skills, and autonomy. When your team is small, it’s much easier to build that sense of trust and confidence with each individual team member. In contrast, the CEO of a corporation with thousands of employees wouldn’t be able to create such strong connections because there are simply too many people to do so.

How to Create Trust

How can you create trust, as Ismail recommends here? In The Leadership Challenge, leadership expert Barry Posner offers three tips for creating an atmosphere of trust within your company:

1. Be the first to show trust. Your team will follow your lead, so trust your workers to do the tasks you assign them. Also, be open and honest about your goals and your motivations so your employees feel like they understand you and can trust you in return.

2. Demonstrate empathy. Treat your team members with respect, and let them know that they can always approach you with any problems they’re having. Fostering this kind of personal connection will create deeper feelings of trust.

3. Share your knowledge. Demonstrate your knowledge and skills so that your employees know you’re qualified to lead them. This also gives you an opportunity to help your team members solve their work-related problems, if needed.

Ismail puts extra emphasis on autonomy: You must trust your employees to tackle problems on their own and to ask for help when needed. Micromanagement will frustrate your employees and harm your company’s ability to be flexible. Many large corporations fall into this trap, relying on strict rules and monitoring because they can’t build strong relationships with all of their employees.

Autonomous Employees Need Feedback

As Ismail notes, micromanagement is counterproductive, but getting the most out of your employees does require clear communication and mutual constructive feedback—autonomy doesn’t mean isolation.

In No Rules Rules, Netflix CEO Reed Hastings explains how he maximizes his workers’ effectiveness and job satisfaction by not just encouraging but requiring open and honest feedback at every level of the company. In other words, if a newly hired employee wanted to give constructive criticism to Hastings himself, the new hire would be expected to do so.

Because of this constant stream of feedback from all directions, Hastings can give his employees the sort of autonomy that Ismail talks about here—if an employee’s decision causes a problem, that employee will quickly hear about it and correct it.

Crowdsource as Much as Possible

Aside from reducing overhead costs with small, decentralized teams, rapid-growth companies also save money by crowdsourcing or outsourcing almost every part of their business model instead of committing their own assets. Ismail calls this practice collaborative consumption. For example, Etsy doesn’t own any of the products sold on its site; it just provides a platform for sellers. Therefore, the company profits without risking any of its own assets.

(Shortform note: Collaborative consumption is one type of collaborative economy: people sharing their resources with each other for mutual benefit. A collaborative economy has numerous advantages over a traditional commercial economy, including a larger supply of goods leading to lower prices and reduced waste due to reselling used items instead of forcing people to buy new products.)

You can even crowdsource the money to launch your venture in the first place. Before you officially launch your new product or service, offer preorders through Kickstarter or a similar crowdfunding site. If you don’t get enough orders to make creating the product worthwhile, simply cancel the campaign—you won’t have lost much money, so it will be easy to adjust your ideas and try again. Plus, your customers will be refunded their contributions.

How will you know which ideas are worth crowdfunding? Ismail says it’s easy to know ahead of time whether an idea will be successful or not; simply buy some ads on social media sites and see how much engagement you get. If there’s enough interest, go ahead with the crowdfunding campaign and get your new rapid-growth company started.

(Shortform note: In addition to preorders and advertising, you can crowdsource customer feedback to help you improve your company. Since your company’s community will—almost by definition—be the people who use your products or services, they will also be the people best able to point out your strengths and weaknesses. You could even ask for customers’ input on your products and ads to improve your chances of successful crowdfunding campaigns.)