The 12 Steps of Starting a Successful EXO
The following steps provide a tried-and-true process for building an ExO. While we have updated some of the details, the sequence of steps has proved exceptionally powerful over the years. Perhaps for the first time in business history, we have a prescriptive path to building purpose-driven, scalable organizations.
Step 1 – Select an MTP (Massive Transformative Purpose)
In this module, the focus is on selecting a Massive Transformative Purpose (MTP) for your startup. The MTP is the foundation of a startup and represents the biggest problem that you would like to solve. It is crucial to be passionate and excited about the problem space you plan to attack.
The act of finding an MTP can be seen as the consequence of asking yourself the following series of questions: · What do I deeply care about? What problem do I want to solve? What amazing thing do I want to create? · What am I meant to do? At the end of my life, what will I be most proud to have achieved? · What would I do if I could never fail? · What would I do if I received a billion dollars today and had to spend it on making the world a better place?
Your MTP should not only be about you and your goals as an entrepreneur, but it should also be about your employees. It should attract employees who share your motivation and buy into the dream. You should gauge your MTP against the acronym’s letters: is it Massive, Transformative, and Purposeful?
A profit motive alone is insufficient to build a startup; it is the burning passion to solve an obsessive, complex problem that keeps an entrepreneur pushing forward. An MTP can be transformational for a vertical industry or a region, as exemplified by Grab’s MTP of “Empowering Southeast Asia with technology” and Infarm’s MTP of “Feeding the Cities of Tomorrow.” Infarm is the world’s fastest-growing urban farming company, offering an Agriculture-as-a-Service business model that uses 95% less water, 90% less transportation, and zero chemical pesticide compared to soil-based agriculture, while also using renewable energy.
Step 2 – Join or Create Relevant MTP Communities
The collaborative power of communities is crucial to any exponential organization (ExO). Your Massive Transformative Purpose (MTP) is the starting point for galvanizing a community – better yet, building your own community around your MTP. If you don’t have the resources to build a community, there are already communities out there filled with other passionate, purpose-driven people devoted to the same crusade.
For example, if you dream of curing cancer, there are many communities out there devoted to cancer or heart disease research, such as TEDMED, Health Foo, DIYbio, GET (Genes/Environments/Traits), WIRED Health, Sensored, Stream Health, Life Itself, and NextMed. The Quantified Self (QS) movement is a great example of a community with an MTP. Today, there are thousands of QS meetup groups worldwide with more than 100,000 members. Livekindly.com is a plant-based food community that aims to change the global food system.
If you think your problem space doesn’t have community support, check out www.meetup.com. Meetup’s mission is to revitalize local communities and help people around the world organize. The company believes that people can change the world by organizing themselves into groups that are powerful enough to make a difference. Meetup convenes more than 150,000 interest-based groups – made up of about ten million members – in 197 countries around the world.
In any community-driven startup, there will be tension between the good of the community and the good of the company. For Chris Anderson, the choice is easy: “Are you primarily a community or are you primarily a company?” The reason you have to ask yourself this is that sooner or later the two will come into conflict. Anderson says that his choice to opt for the good of the community came from Matt Mullenweg, the CEO of WordPress, who advises, “Whenever this moment comes up, always bet on the community, because that’s the difference between long-term thinking and short-term thinking.”
In summary, getting the community right is crucial to the success of any community-driven startup. If you get community wrong, the engine of innovation dissolves, and you won’t even have a company anymore.
Step 3 – Compose a team
Step 3 in creating an ExO involves carefully composing the founding team. The team must share a passion for the MTP, and everyone must be motivated self-starters. The following roles are critical in a founding team: visionary/dreamer, user experience design, programming/engineering, and finance/business. Other skill portfolios can be used, such as discovery skills and delivery skills. However, the founding team must have complete trust in each other’s judgment, especially in the face of rapid growth and change.
The PayPal story is an example of how a successful company can grow out of a core team that is composed of friends. The original team, known as the “PayPal Mafia,” has helped each other on subsequent startups, including Tesla, YouTube, SpaceX, LinkedIn, Yelp, Yammer, and Palantir, companies that today have a total market cap approaching two trillion dollars. It is essential to create a fully synergistic core team, where everyone is a team player and straightforward, rather than someone who is brilliant but toxic to the organization, as stated by Arianna Huffington.
Step 4 – Breakthrough Idea
Step 4 in becoming an Exponential Organization (ExO) is to find a breakthrough, disruptive idea that leverages technology or information to massively transform the status quo, with a minimum 10x improvement over the current state and the ability to cut the cost of marginal supply. You can look for ideas by applying converging exponential technologies, aligning your Massively Transformative Purpose (MTP) with coming disruptive meta-trends, or searching within the context of UN Sustainable Development Goals or Grand Global Challenges. Starting with a passion to solve a problem rather than an idea or technology is better as it allows you to be flexible and find the best fit. It is crucial to execute relentlessly and never give up on finding an investor, as success rarely comes from the idea, but from the team’s attitude and execution.
Step 5 – Build a Business Model Canvas and ExO Canvas
Step 5 involves developing a plan to bring the core idea or breakthrough identified in Step 4 to the market. To do this, the recommended tool is the Business Model Canvas (BMC), which was created by Alexander Osterwalder and popularized by the Lean Startup model. The BMC is a diagram that outlines the various components of the business model, including value propositions, customer segments, and revenue streams. It is important to keep the BMC simple and not overthink it at this early stage. Experimentation will provide the next level of fidelity.
Once the BMC is completed, the next step is to fill out the ExO Canvas. This canvas begins by stating the company’s Massive Transformative Purpose (MTP) and listing the information streams that can be leveraged. Then, the plan should document how each of the SCALE and IDEAS attributes (as described in Step 3) will be applied to the business. Finally, a list of implementation steps should be included in the ExO Canvas to ensure the plan can be put into action effectively.
Step 6 – Find a Business Model:
To achieve a 10x improvement, a new business model is often required, and emerging technologies can create new opportunities for disruptive business models. Disruption occurs when a startup offers a less expensive product or service to meet a future or unmet customer need using emerging technologies. Southwest Airlines, Google, and Netflix all transformed their respective industries by adopting new business models. The delivery, pricing, personalization, and timing of a product or service can be transformed to create a distinct advantage. The goal is to add value to the customer and to consider how to layer profit-generating operations on top of what is essentially free baseline information. The eight ways to build a business model when the underlying information is free are immediacy, personalization, interpretation, authenticity, accessibility, embodiment, patronage, and findability. Fred Wilson of Union Square Ventures notes that many incumbents in different industries are currently being disrupted by multiple startups, all attacking one individual service within an industry.
Step 7 Build the MVP (Minimal Viable Product)
The next step in building a startup is to focus on customer discovery and building the MVP (Minimum Viable Product). Customer discovery involves reaching out to potential customers to validate assumptions and identify their needs and problems. The goal is to find a need that a significant number of people have and generate a solution that satisfies their needs. Conversations with potential customers provide valuable information about usage patterns, market segmentation, and customer motivations.
When building the MVP, the goal is to determine the simplest product that will allow the team to go to market and see how users respond. This process involves rapid iteration, testing assumptions, pivoting, and learning from feedback loops. The MVP is essential because it is much easier to change a product early in the development process than later. SpaceX is an example of a company that used an iterative approach to build its MVP, starting with the Falcon-1 rocket and eventually building the Falcon-9, the most successful launch system ever built.
It’s important to note that not all startups thrive by experimentation and purpose only. Some successful startups, like LinkedIn, Palantir, and SpaceX, were successful due to a strong vision of the future. The key is to balance experimentation with purpose and vision.
Step 8: Validate Marketing and Sales (Right side of the canvas)
To validate marketing and sales for your product, you need to establish a customer acquisition funnel that qualifies potential customers and converts them into users and paying customers. The AARRR model, also known as the Pirate model for startup metrics, is a useful framework for tracking the key metrics of your customer acquisition funnel.
The first step in the AARRR model is Acquisition, which involves figuring out how users locate your product. Start with online advertising and a basic offer, and iterate the offer via A/B testing on multiple platforms until you find a consistent stream of leads.
The second step is Activation, which involves ensuring that users have a great first experience with your product. Try multiple offers and collect feedback to make a great first impression.
The third step is Retention, which involves measuring the Net Promoter Score (NPS) and finding ways of adding more value or more offerings to keep users coming back.
The fourth step is Revenue, which involves figuring out how to make money. Subscription-based models are popular and successful today.
The final step is Referral, which involves testing the virality of your product by using the NPS approach to measure how likely users are to tell others about your product.
If you have achieved product-market fit, customers will be excited about your product and willing to pay for it. As seen in the example of Amazon Prime, iterating aggressively on your business model can lead to massive success
Step 9 – Implement SCALE and IDEAS
Step 9 is about implementing all ten attributes of SCALE and IDEAS, along with a great MTP, to achieve ExO status. It is important to be relentless in implementing these attributes as someone else may be using them if you are not. Finding the right sequence for implementation is crucial and has been discussed in the attribute chapters.
SmartGroup, a publicly listed HR benefits company in Australia, has launched ten projects corresponding to SCALE and IDEAS attributes every quarter, resulting in a 10x increase in their stock price over a four-year period.
Step 10 – Establish the Culture
Establishing an ExO’s culture is a critical step that involves creating a cohesive team through shared values and norms. A strong culture can act as the glue that holds an organization together during its rapid growth. However, establishing a corporate culture can be challenging, and it requires effective performance tracking, transparency, accountability, execution, and high performance. Moreover, building trust between management and employees is crucial for creating a culture where everyone feels valued, and ideas are encouraged, even if they challenge the status quo. A great corporate culture is an intangible asset that can drive success and innovation within an ExO.
Step 11 – Ask Key Questions Periodically
There are eight key questions that startups must periodically ask themselves to move closer to becoming an ExO. These questions focus on understanding the customer, the problem being solved, the solution’s potential to improve the status quo by 10x, marketing and selling strategies, scaling customer segments, and driving down the marginal cost of supply. The timing of the invention is also essential, and startups should consider the evolutionary trajectory of technology when designing their products to increase their chances of success. According to futurist Paul Saffo, most transformative inventions take about 15 years to be fully realized. Michiel Muller adds that a 9x improvement is required to move customers from incumbent products to new products from startups. Therefore, a minimum 10x improvement is necessary to start an Exponential Organization
Step 12 – Building and Maintaining a Platform
Finally, we need to revisit the definition of platform. It is a business model that creates value by facilitating exchanges between two or more interdependent groups, typically consumers and producers, here are the main four points on building and maintaining a platform:
- Identify a pain point or use case for a consumer.
- Identify a core value unit or social object in any interaction between a producer and consumer.
- Design a way to facilitate that interaction and build it as a small prototype.
- Determine how to build a network around your interaction and turn your platform users into ambassadors.
Additionally, to implement platforms, ExOs follow four steps in terms of data and APIs: gather, organize, apply, and expose. It is important to keep in mind that the world is changing rapidly, and power is becoming easier to acquire but harder to keep. Platforms have a significant advantage over products or services, and building a community around your platform is crucial for success. Lastly, transient competitive advantages can only be obtained through platforms and purpose, community, and culture.
Module is complete, keep up the great work change maker!
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