Sep 11, 2018

From failure and bust to success and wealth

Eighty-five percent of all new businesses fail in the first 2 years, however, business failure rate has declined over the last ten years, showing $300,000,000,000 in total investment. Also, according to the United States Census Bureau (2017) “In 2015, the nation’s 414,000 startup firms created 2.5 million new jobs” (para.1). Over the past 15 years exponential companies such as Google, LinkedIn, Amazon, PayPal and Tesla have proveden that companies are no longer taking 30 to 40 years to develop and grow into multibillion dollar organizations, creating wealth, Jobs and gross domestic produce (GDP) growth in the process. While much smaller companies are taking lessons from the predecessors and incumbents in becoming more successful over the short term. Thus, as American startup companies struggle to survive and reduce the dramatic failure rates, applying cutting edge Startup approaches and techniques can lead them to become long lasting enterprises. 

Tens of thousands of businesses get started each year and almost the same amount fail within the first two years. Companies continuously try to find ways to extend the life of their businesses or just to merely pass through the startup phase into the growth and established phase of the business lifecycle. As practitioners, entrepreneurs and scholars grapple with this phenomenon, tremendous insights have surfaced out of this collective effort. It is very enlightening to know that these efforts are paying off, within the last 10 years companies have become more successful, growing more and has reduced their failure rates within the first two years of startup. 

For the past two decades new companies have struggled to stay afloat, with approximately 85% of all new business failing within the first two years of start up. Not withstanding this, companies have been finding new ways to improve their odds of survival and it is within these tools that new firms are finding hope. According to Ismail (2014), “Driven by accelerating technologies, Exponential Organizations ExOs allow us to organize ourselves in new ways to tap into this information-enabled world” (p. 228). It is clear that employing new breakthroughs in business frameworks many startups have significantly reduce their likelihood of failing. While many firm are still struggling to survive, there are example of others using cutting edge tools and models that are leading them to success. 

Furthermore, startup that have used a learned experimentation approach popularized by the Learn Startupmovement since the early 2000s have further improved their likelihood of new company’s survival rates. In his book The Lean Startup, Eric Ries explained, that new companies must take on a learned experimental approach to starting up, finding ways to learn fast and move quickly through an iterative process of building, experimenting, learning and building again (Ries, 2011). What Ries, other entrepreneurs and scholars have observed is very important in understanding the breakthrough of many new firms as they ward of business failure and drive to success.  It is clear that companies that approach the startup process as an experimental learning model has a high chance for surviving. How does learned experimentation related to exponential organization techniques?

Learning and applying the tools and techniques of ExOs will allow companies to go beyond mere survival and experience rapid growth as they drive to even greater success.  ExOs characterizes those companies where their outputs in production far outweigh their mean of that production. Take Uber for example, with just under 10,000 employees, they have approximate yearly revenue of $28,000,000,000 and a net worth of  $72,000,000,000. According to Ismail in his book Exponential Organizations, he observed that one of the most tremendous tools available to start up company is the creation of a massive transformative purpose (MTP). This MTP is the overall “why” or purpose for the company’s existence and is accomplished by the automated tools of IDEAS and SCALE. The former represents the following; interface, dashboards, experimentation, autonomy and social, while the latter represents; staff on demand, community and crowd, algorithms, leveraged assets and engagement (Ismail 2014). When one analyzes the observations of Ismail it is clear to see how companies like Uber has become so successful. 

Uber is not an outlier in this regard however, there are many other successful ExOs like Uber. Namely, Payal, GitHub, Tesla and AirB&B. What these companies have done is figure out a way to leverage the information technology around them and assets they do not own. Take AirB&B for example, they are considered to be the largest hotelier in the world, yet they own no hotels. And what about GitHub, they have leveraged a vast resource information technology developers by hosting them on their platform why they have not hired a single one of these people. The Examples above show that once organizations learn to exploit tools and techniques of the ExO model they can quickly grow from the experimentation stage of their businesses – the startup phase, into rapid growth towards the early stages of the growth period of their product lifecycle. 

Now, it is clear from observation that startup will not become successful by trying to enter larger markets to compete with companies that are much larger and better then them. In his book Zero To One, Peter Thiel observed that startups that tries to improve on the already existing products and services – essentially going from 1 to 1ⁿ- will always have a disadvantage as they are creating incremental improvement on already established products or services being dominated by large companies. According to Thiel Going from 1 to 1ⁿmeaning taking something that is already existing and improving on it, essentially not creating anything new, where as, going to 0 to 1 is the creation of a new product or service. Thiel suggests that in order for companies to become truly successful, they should not only use known tools on sustaining products and services but instead to great anew, going from 0 to 1. It is clear that while startups have great tools and techniques to exploit at to their advantage, they must do so within new, disruptive and differentiated products markets. 

Yet the question remain to be asked, can all this employment of highly leveraged technologies and models lead to a company becoming a 10Xer in the long run? As Collins has noted in his research book Great By Choice, 10Xer characterizes those companies that over a minimum of 30 years have out performed their closest competitor by at least ten times, Collins (2011). Along with all the wonderful tools and breakthrough startup techniques and cutting edge technologies that are available, there are other facets to moving a startup from intermediate success to success for many decades to come. In their book Built To LastCollins and Porras (1994) discovered the following in their research, “If an organization is to meet the challenges of the changing world, it must be prepared to change everything about itself except [its basic] beliefs as it moves through the corporate life”, (p. 81). What Collins and Porras have observed in their five year long research, is that in order for companies to move from startup and early success to long-term visionary companies they must begin with a core belief and reason for why they are doing what they’re doing, while they’re moving through the changes of their company and their products than ever changing world, they must learn to adapt and change on the outside but keep there core intact. 

Furthermore, startup and companies looking to have a long-term future as a 10Xer and a visionary company, must find a way to mold all the tools, techniques and models needed for success into a cohesive and coherent strategy for succeeding in the long run. In his book Great by ChoiceJim Collins observed, that companies that are seeking to become visionary and 10Xers for very long time to come, should encompass all that they do around the following principles; fanatic discipline, empirical creativity, productive paranoia and this must all be galvanized and manage by level-five leadership Collins (2011). Thus, it is very important that startups using the most cutting-edge technology, tools and models to their advantage, must bring all this together with proper organizational and managerial framework, otherwise, all the high technologies, tools and techniques, means very little in the long run. 

In the end it is clear that entrepreneurial startups are still struggling to stay alive and failure rates are still high, but there is light at the end of the tunnel. As we have seen with successful startup like Uber and Gitub there are new startup tools, model and techniques that can improve a startup chances for survival. What about after startup? While companies might live through the startup phase they can still struggle to become long-term successes. Hence, companies seeking to be long term success must employ additional tools and models that are specific to maturing company. Now what is very clear, is that startups have what they need to grow pass the startup phase and move into growing success that in turn will become long standing successes. The question is, do they all have the intelligence and discipline to make the best of these findings. 

© Orlando O Spencer, Inc. 

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