Exponential Startups = More Castles (Airbnb vs. Hyatt)

airbnb vs hyatt exponential castles

Exponential startups can beat big traditional companies — and they do it with fewer employees.

But figuring out how to change the world is intimidating! We see successful companies like Airbnb, Snapchat, Instagram and wonder, “How can we build something that’s even half as awesome?”

We’ve built over 40 companies in the past five years, and in that time we’ve become big fans of Salim Ismael’s Exponential Organizations, which describes how to create lean companies that have an outsized impact on the world.

Why Exponential?

Exponential organizations stay small and scale at least 10x faster than traditional businesses. Smart companies can drop the cost of both supply and demand to almost zero by using the latest digital technologies, leveraging shared assets, and tapping into the power of the crowd.

When WhatsApp was acquired by Facebook for $19 billion they only had 55 employees! A year after the acquisition they had 900 million users — still being supported by a small team of only 50 engineers.

Impressive!

What about Hyatt, which was the leader in hospitality? Over more than 60 years they’ve built up a giant portfolio of 600 locations in 57 countries and 550 cities across the globe. It’s a massive infrastructure based on real assets.

Then Airbnb introduced a disruptive business model based on the fact that they could use bedrooms similar to the ones Hyatt was building—but without owning them. They could tap into the power of the crowd to leverage abundance.

Here’s a video walkthrough of Hyatt vs. Airbnb (linear vs. exponential company).

The genius of Airbnb was to create a platform — not to create more assets, but to connect existing assets and make them accessible to everyone. Airbnb can add new rooms almost for free, whereas Hyatt has to build or buy them.

Airbnb is completely focused on creating value for their customer, not on building hotels. Not on expanding in countries and cities. Just on building a solid platform with a global reach.

The result is that Airbnb is now in more countries and cities than Hyatt, and they have over 3 million listings. They even have 1,400 castles.

But the biggest thing isn’t the massive outcome — it’s that Airbnb achieved all of this with a tiny fraction of the number of employees. Only 2,000 people are creating a company that’s worth more than 30 billion dollars. Compare that to Hyatt’s 100,000 employees and $7B market cap.

That’s truly exponential! And it’s how we think at 10xU.

Why Didn’t You Buy from Us?

What can you learn when the customer says no thanks?

The key to a successful startup is understanding your customer. This sounds obvious, but for some reason it’s not.

Yesterday we talked to an entrepreneur who’s poured $90k into his beautifully-designed product — and he’s only just now starting to think about revenue.

So he’s asking investors for money to figure it out. But that’s not how it works.

Smart investors want you to already know how you’re going to make money AND they want you to already have some proof that your plan is going to work.

Otherwise you’re just taking a giant gamble with their investment that probably won’t pay off. You might not be able to see this, but they definitely can.

Finding Customers

We recommend spending as much time validating your sales and marketing as you do developing your product.

The toughest thing to understand is why people DON’T buy from you. They check out your website. They read the emails you send them. They scan your articles. They watch your videos.

And then they don’t buy.

Here at 10xU we recently ran a marketing campaign aimed at entrepreneurs who want to learn to build successful startups that scale. Some people bought a six week course — but many more didn’t buy.

Why not?

Everyone’s gut instinct is to assume it’s price: “They would have bought if only we were charging less money.”

Don’t Negotiate Against Yourself

This is called negotiating against yourself. Don’t do it. There’s no evidence that price is the issue.

The thing is that people who don’t buy from you usually don’t tell you why.

So we decided to try to find out.

After sales closed for our most recent course, we sent an email simply titled “Advice” that said:

Hi- Startups are hard! We’re always telling entrepreneurs to talk to customers, so now we’re practicing what we preach and I’d like your advice.

It looks like you’re interested in our Cobuild Course — but you didn’t pull the trigger. I’d like to offer you one of our awesome two-hour classes for free in order to learn why.

Here’s the deal:

1. Fill out this short survey.

2. Attend the first class of our next cohort for free (I’ll email you the info).

You’ll be doing me a huge favor! And I promise you’ll get a lot of great info from the class to help you with your startup.

(Feel free to copy both the language in the email + the survey with your own customers)

Growth Hacking

We sent the email in two waves. For the 25 hottest prospects we used one of our actual email accounts so that it was more personal. We waited a day, and then for the rest we did an email blast but also made sure it came from a personal email address.

We decided that giving away a spot in one of our two-hour classes was our best offer because it’s only interesting to our target customer AND it lets people experience our product — which is the main thing we’re trying to accomplish right now.

Customer Insights

People responded! We learned that the biggest barriers to sales are:

  1. Not ready yet
  2. Not enough info

These are very different than pricing, right? Now we know that we need to do more nurturing and free content (which means you’ll be seeing lots more free stuff from us).

People told us their main motivations for starting companies:

  • “Build a great product which customers use with simplicity.”
  • “I would like to build something significant and important, to solve real problems.”
  • “Take the next step forward in my career by building something successfully.”

We also learned what we’re offering that’s most important to people:

  • In-person mentoring
  • Intro to potential investors

We agree that the in-person mentoring is where the magic happens. The classes give entrepreneurs the roadmap to building a successful business — and the mentoring sessions allow us to deep dive to provide specific help for their individual situations.

Validating Our Pricing

Price did come up a few times, but it’s not the biggest factor.

We even hopped on a video chat with one of the people who showed up for the class to do a deeper dive on his experience with our brand.

Yep, that’s right, we got to talk to a stranger we found on the Internet about his impressions of 10xU and what he likes and doesn’t like about our offering. It’s pure marketing gold!

The good news for you is that 10xU is providing more free content, starting with these events over the next few days:

  • Finding customers: Free webinar on growth hacking: How to use low-cost marketing to find customers — with awesome growth hacker Marc Howard from Rokk3r Labs. Today 5/9 at 5:30p: bit.ly/GrowthHack10xU
  • Raising money: We are hosting the DECODING the Fundraising Process event in Wynwood Wed 5/10 at 6pm — Learn to plan for fundraising from the beginning so that you can make your entrepreneurial dream a reality: bit.ly/DecodeFundraising10xU

Written by Mike Lingle — Find more practical suggestions for entrepreneurs at 10xU.com.