This is Vikaas here, Investment Advisor and founder of www.jaagrav.com.
Today, I talk about some of the most powerful lessons of Scaling up of businesses by entrepreneurs like Brian Chesky of AirBnB, Tobias Luke of Shopify, Peter Thiel of PayPal, Bill Gates of Microsoft and Mark Zuckerberg of Facebook.
With some start-ups getting identified as a “Soonicorn” and some already having achieved unicorn status, it is important to understand how some of these businesses scaled up. Their thoughts about scaling up are nuggets of gold!!
# Lesson 1: According to Brian Chesky of AirBnB, In order to scale, you have to do things that don’t scale.
While this seems counter intuitive, but it is important that the founder gets his hands dirty in the trenches in the early days and specially handcraft the experience of his first few customers. This lesson came to Brian wherein he was asked by Paul Graham, Co-founder of Y Combinator – “Go to your users. Get to know them. Get your customers one by one.” While initially Brian was not convinced since he felt that meeting individual customers will not enable him to scale his company. However, Paul convinced him that considering their company was small now, meeting users one-on-one was the only thing which was required, getting to know them, and make something directly for them. The roadmap often exists in the minds of the users the founder is designing things for.
Remember the picture of Jeff Bezos wherein he was himself taking orders, packing boxes, and emailing his customers when he started Amazon. After all, he did not start with million users to begin with.
# Lesson 2: Tobias of Shopify believes in the power of becoming a platform in order to scale up, since platforms have the propensity to become exponentially big.
According to Tobias, building a virtuous cycle where everyone is wining is the key to emerge as the biggest winner. Network effects create deep moats of business, leads to compounding value, and eventually to a large scale. It works on a Metcalfe Law, wherein the effect of a telecommunications network is proportional to the square of the number of connected users of the system (n2). Two telephones can make only one connection, five can make 10 connections, and twelve can make 66 connections, i.e. n (n – 1) / 2. However, to become a platform, first solve the basic problems. Amazon became a platform when it first solved the basic problems of customers who required wide assortment at a low cost with quick delivery. It focused on books to begin with. Once it got those ingredients in place, it started to sell other items, thereby becoming one of the largest platforms in the business world.
# Lesson 3: Peter Thiel of PayPal is a man in a hurry!! He believes in scaling up so fast that one should be able to escape velocity from the black hole of hyper-competition.
According to him, competition only enables the business, at best, a winner in a losing game. It’s no point beating the competitors at their own game. One needs to invent a new game and master it, basically creating one’s own mini monopoly by differentiating oneself and the business. Differentiation, however, depends on the size of the market, the speed of competition, and the entrepreneur’s own aspirations for scale.
So, there are two paths, one is either get to scale or figure out the business model.
Getting to scale enables a massive positive exponential curve, thereby exponentially growing users; however, the flip side is that costs also grow exponentially.
# Lesson 4: Mark Zuckerberg of Facebook believes in imperfect being perfect at least when it comes to launching a product. His mantra Move fast and break things – is a great way to think about when launching products or services. Because the assumptions about one’s customers are not right, most of the times. One needs to test a real product with real customers as soon as possible basically the moment one has a skeletal version. Showing one’s products rather than perfecting it without launching the same ultimately would lead to wastage of opportunities.
According to Mark, the opportunity to build an enduring product far outweighs the costs of alienating a few users along the way. And the sooner one internalizes that trade-off, the faster one will move along the path to scale. So quit fussing!!
# Lesson 5: According to Bill Gates, businesses not only need to take advantage of inflection points, however they also need to accelerate those inflection points if one were to achieve huge scale.
Inflection points are more than big changes. True inflection points have far-reaching effects that change how people work and how they live. Think about the wheel, printing press, the internet, and, now Covid-19.
Companies that effectively harness an inflection point can ride a wave of changes to massive scale. It is equally important to execute and actively accelerate the inflection and not just ride the waves; one needs to make them.
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Hope you enjoyed listening to this!!
For more interesting topics, you may check out my website, www.jaagrav.com. If you want to reach out to me, you may email me at vikas@jaagrav.com
Thanks!