The Only Way to Grow Huge
blog.samaltman.com
blog.samaltman.com
In this case the most common misunderstanding seems to be not to realize that present day big companies were once small. You could have pre-empted that by reminding readers that once companies reach a certain size they don't have to rely on making something great to grow bigger, but that if you look back at the earliest history of those companies, you'll find most did.
I usually put these pre-emptive replies to probable misunderstandings in footnotes, because I don't want to clutter the text with things that are obvious.
... not that I am without guilt on this ...
So now I actually appreciate more confident, strong language, because when I read a blog post or article like this, I can take the caveats as being there, but unsaid.
I sometimes think that if everyone took this assumption, Hacker News would decimate its comment count!
As a side-effect of his work on expert forecasting[1], Tetlock discovered that people put more stock in those who made confident predictions than those who qualified their predictions. To the point that he basically says: if a person is a famous pundit, they are more likely to be wrong, because the media prefers bold predictions to maybes and perhapses.
In business you can be bold or not bold. If you're not bold, you are at a social disadvantage.
Then you can be right or wrong. If you are right, everyone hails you as a visionary. If you are wrong, nobody remembers.
So in fact, in business, the rational strategy for an individual is to speak confidently and let the dice fly high.
[1] I reviewed his book a while back. http://chester.id.au/2012/07/29/review-expert-political-judg...
For example, I can't truthfully say that my code is bug free or the best or whathaveyou. But I can say "My product improves <business problem>."
I guess the trick is to have two hats. The first hat is the problem domain hat. This is where you make confident, accurate claims about your product.
The second is the solution domain hat. This is where you park your professional anxieties about whether you've crossed and dotted everything.
Qualifiers are substituted by getting multiple opinions from different pundits.
Luckily there's an extreme predictor for every extreme event, so simple selection happily promotes some loudmouths to guru every now and then.
This gives you the handles you need to grasp and wrestle with the vagueness of the actual world without either needing to give up rigour or rely on hacks and undocumented conventions about the mapping from the real world into the logical world.
If you've got the patience, I can give as an example a long review I wrote of Sidney Dekker's Drift into Failure, where in part I argued that his argument largely vanishes if reframed in terms of fuzzy logic: http://chester.id.au/2012/04/09/review-drift-into-failure/
Edit: Hmm, I really look like a spammer in this thread. Not intentional. No more than usual, anyhow.
I'm not trying to be a stickler. Granted, I work mostly in science research, where broad claims are discouraged and quantifying confidence in a hypothesis is expected. Extraordinary claims require extraordinary evidence.
At best, I think this rule could apply to (maybe) 80% of "huge" tech companies. 80% is a disingenuously long distance from "all companies".
Take this statement at the opening:
"All companies that grow really big do so in only one way: people recommend the product or service to other people."
The statement "all companies" and "only one way" is pretty complete and absolute by my reading.
When obviously there are plenty of large companies that have not relied on word of mouth. For example Boeing. Or Asplundh a large privately help tree contractor. Or haliburton. Etc. Even "in the beginning". Or Fedex is another.
Of course there is a subset of "all companies" for which this statement is true. So a footnote would have helped or a few words as qualifiers to the original thought.
It's hard to call it a misunderstanding when the title of the post starts boldly with "The Only" and the first paragraph starts with "All companies". The premise of there being some universal rule for growth is absurd and requires only a few counterexamples, of which there are certainly many to consider (this page now contains dozens), to be demonstrably false.
By reinterpreting the author's argument with a requalification of most, you've already reached a much more sane argument. But you know as well as I do that this post would never frontpage if it had been called "The Best Way to Get Huge" or "The Way Most Companies Become Huge".
Edit: Or maybe it would have anyway? Sam Altman is a partner at YC [1] and I can't help but wonder if such content gets a boost to frontpage no matter what. After all, people have shown that penalties are applied to a hidden list of phrases and domains which boots them off the frontpage [2], so the same principle might be applied in reverse to certain things. For example, the controversy penalty might be removed for certain domains. I'm sorry, but after reading [2] my faith in the scoring system here is at an all-time low.
[1]: http://en.wikipedia.org/wiki/Sam_Altman
[2]: http://www.righto.com/2013/11/how-hacker-news-ranking-really...
If he was a professor of business or had a long standing knowledge of business that would be one thing. The word "most" would certainly be better but even that goes a bit to far with a subject as large as "business" and "companies".
Do the Peter Druckers and Clayton M Christensens of the world really not know more than the Steve Jobs and Bill Campbell types? I choose those names rather than Bill Gates or Larry Page because those guys have done multiple companies, which seems to be an important criteria for doing "consistently well". I find it difficult to believe that such prolific thinkers as Drucker or Christensen would get circles run around themselves.
For the bottom of both populations, I'd even venture to guess that the professors of business are more knowledgeable than the startup founders. Come on, you've met some pretty bad startup founders, and you know it. Although I suppose it also depends on how one defines the criteria because it's always easy to cull the population to suit one's conclusions.
That's an interesting question. It depends on the size of the population, I guess. If we acknowledge that a minority of people can start a successful company by chance, why don't we acknowledge that an even smaller minority can do it multiple times, also by chance?
Aside from the specific situation - I'm kinda curious what HN readers think "qualifies" a person to give advice. My girlfriend's doing an MBA. I read her coursework sometimes. Some of it is useful with the appropriate grain of salt applied, but I find that blog postings from people who have actually run businesses (or listening to Larry, Urs, Amit, Milo, Andy etc. at Google-internal presentations and trying hard to read between the lines) are far more informative. There is the theory and there is the reality when it comes to running businesses, and most of the theory is bunk.
Plenty of other very impressive business people, including the likes of pg, peter thiel etc lend a careful ear to what Sam has to say .. so, with all due respect, I think you'd be a fool to disregard his thoughts.
Idea: A social news aggregator that scores people on the disagreement hierarchy, and penalizes people who score poorly by not letting them comment and post (or at least gives a lower weight to their comments and posts) (not trying to single you out larrys, just throwing it out there because I think it's a valuable idea)
But Sam made an all inclusive statement regarding business and not just startups and startups that would be (I'm guessing) the type that YC would fund. I would send someone to Sam for that as well.
In the comments on this thread (in response to me) I am being taken to task over suggesting that he is not a business school professor (who has studied many types of businesses over many years) or an experience businessman (who has observed businesses over many years). Consequently his knowledge of business is almost certainly limited to what he has seen since college (mid 00's) and in a particular niche in the business world. Which was my point. His statement didn't reflect the niche that he knows about. And as you pointed out he didn't use any qualifiers or footnotes.
As far as business school professors I am quite aware of the limitations and the idea of "that who can do those who can't teach". (And exception might be someone like Steve Blank who I have worked with in the past.)
As an example I was sent a document to review by a business school professor that had already been distributed to students and found several obviously inaccurate statement about a subject that I know more than the professor does simply because I have been involved in the subject since 1996. And I work with it every single day. When the professor heard my comments they invited me to speak to the class.
Why "Best" is Best
How "Only" Got Me To the Front Page of HN(And incidentally, there are no upward boosts for comments or stories, and even the penalties Ken described in that post are much simpler than he thinks. E.g. there is only a single penalty for lightweight domains, not a range of penalties chosen by us.)
I had to figure that out from other comments, because my first reaction was, "Why is pg taking the time to tell some random blogger how to tailor their writing to this audience?"
(I'm a casual HN user, and don't keep up with YC, maybe the identity of the partners is more common knowledge in the larger population.)
This is a bad opening premise. Time Warner and Comcast are huge and they don't seem like word of mouth companies to me. Boeing is pretty huge and they don't sell anything directly to ordinary consumers. I would never run around marketing Pfizer products to my friends.
Take a scan down the Fortune 500 and "viral" growth companies are in the minority.
Even limiting yourself to tech companies, which I presume is all that the author was thinking of, the principle is no less general. Epic is a gargantuan EHR vendor and they grew via acquisition of other vendors, not word of mouth. Cisco did much of the same, and consider Oracle. The list goes on and on.
Military contractors are a whole other issue, of course.
This is a few paragraphs mentioning a fairly obvious point about growing companies, but trying too hard to seem groundbreaking.
Microsoft got itself lucky with an exclusive licensing arrangement then played that hand for all it was worth. Court documents largely from the Novell lawsuit (though there were numerous others) reveal just how cut-throat the company was.
In general, finding some initial advantage and leveraging it is what has tended to work. Government contract, sweetheart deal with an existing major player (Google's search deal with Yahoo early on, for example), patents, strategic lawsuits, FUD, and others.
Altman's premise really doesn't hold water.
If you go back to the early days of Oracle for example, they were providing a highly flexible database and would do it on (mostly) any computer platform you had. The competition was databases that were glorified flat files on mainframes, and IBM dominated that market. It took a few to take the plunge, but the others followed.
Overall his point is very valid.
That's pretty forced.
There are plenty of ways for companies to grow, and word-of-mouth is just one of them. For example, a company can grow by getting a military contract, thus being infused with cash and lots of credibility. You don't get a government contract because Sally told Jim at the DoD about how great you are.
Edit: I noticed many of the comments that share my sentiment are being downvoted. Why?
There is always more than one way to skin a cat.
Companies can limp along for a few years with the latter strategy (I worked at one once), but they don't grow, and eventually they get sick of selling stuff that nobody wants to buy and close up shop. For the examples given (Cisco, Oracle), everybody who's in a purchasing position in the industries they serve has heard of them, and they go into a sales cycle "warm". The salesperson's job is to iron out the details and explain how to integrate the product into a customer's existing workflows to make them more efficient.
Boeing became huge in the 1920s and 30s. I imagine pilots talked to each other a lot about what planes they liked flying, and they could not have succeeded if those conversations didn't favor them.
For example, Time Warner Cable Oceania now provides cable service to the entire Hawai'ian island chain, but they had just bought out the last two systems (by island) in 2002 when I visited. Where I live, Comcast acquired Adelphia, who had acquired AT&T, who had acquired TCI, who had acquired Telemedia.
The Robber-Barons of the 1920s consolidated steel, railroads and banking. Edison and Westinghouse (with Tesla's AC) consolidated small utility companies AND supplied most of the equipment.
I think acquisitions played a huge part in the growth of airplane companies too (McDonnell-Douglas was originally two companies) ... there are very few car companies now compared to the early part of the 1900s and most recently we've watched banks become huge through acquisitions.
Unfortunately, I think the premise of the article is completely wrong, but I wasted my time reading until the end and wondered how so little content could consume so many words. You grow big by knowing a market could be huge and then having the confidence to buy when the price is right (even if the indicators aren't in your favor at the moment).
Iirc (this was a long long time ago) his Philadelphia connection to Ralph Roberts (comcast) was how he built Jerrold (they made cable boxes).
Comcast of course grew large by starting and getting it's first cable franchise in a small town in Mississippi. Nobody chooses their cable company the cable company chooses you.
(I actually have an audio tape of that interview that I made.)
There are a whole host of business requirements that can sink the process of becoming big. Adelphia failed because the Rigas family aggressively expanded the company, took it public but continued to treat it as though it was still family owned (I shouldn't say more). So the business acumen to run an enterprise at different sizes is important - I've seen leaders fail to hire appropriately, then delegate kill promising companies too. I think we could make a long list of reasons for failure.
larrys:
I'd love to hear your audio ... Jerrold was purchased by General Instruments who was in turn purchased by Motorola. Motorola added Jerrold's set-top boxes, to GI's trunk amplifier and line extenders (and other head-end equipment), then Motorola added both to their cable modem business and that conglomerate was ultimately bought by Google. Cisco purchased Scientific Atlanta who was the main competitor.
With respect to Boeing one of the first things actually was a government contract that they received for the war effort. Then they nearly went bust after the war ended.
This is some of the story. There is also an excellent documentary on Boeing.
http://www.boeing.com/boeing/commercial/boeing_bio/chapter3....
I wrote about it a while ago: http://chester.id.au/2013/01/05/on-selling-to-consumers/
Time magazine, Warner Bros, TBS and HBO all benefitted immensely from excellent products and word of mouth.
Regarding Comcast, I know you're hung up on the use of "only" but being a government-issued monopoly probably makes it a less interesting example for this topic. Despite that, we would need to go back in Comcast's history to really understand how it grew.
Oracle and Cisco are terrible examples since they originally produced market-leading products and gained very strong word-of-mouth.
From a cursory reading of Epic history, it also sounds like a bad example for you since it relied heavily on reference customers.
Drugs obviously have huge word-of-mouth spread.
But after finding out Sam Altman is a YC partner, and reading more about how the controversy penalty and other arbitrary penalties actually work, I don't really buy into anything scoring equitably on this site (https://news.ycombinator.com/item?id=6844169) in the long term...
It's worth noting that in this scenario you often don't see regular monthly growth. Instead you get huge spikes when new customers/partners are on-boarded.
When you have a site like Facebook or Craigslist which has very large network effects, to bust into that you have to produce something people want more than those. That is a very difficult - though not impossible - thing to achieve.
"The Three Rules for Making a Company Great."
The three rules are basically:
1. Increase Revenue
2. Increase Quality.
3. Only rules 1 and 2 matter.
I've following these rules since I read about them, and I do think they are very, very, helpful. Even though we grow mostly through direct response marketing, our brand value has been increasing, as has readership loyalty and revenue per unique subscriber. We are starting to get to the point where we're producing the type of quality that nobody else produces, anywhere. This easily solves one of the biggest marketing questions: What is your unique position? Eventually, the answer will be simple: We're simply better than all of our competitors. By a lot.
http://hbr.org/2013/04/three-rules-for-making-a-company-trul...
When their product is not growing like it should, Silicon Valley startups always hire more engineers to add more features. Oftentimes, the product is good enough they just need put in more marketing efforts.
It almost feels like marketers and business dev people are second rate employees compare to engineers when their job is could be more important after the initial launch.
customer acquisition cost < customer lifetime value
Now, one way to get there is referrals. But other ways to get there is to have a product good enough that at least you get repeat customers, and still yet another way is to find a way to cheaply acquire new customers through advertising/marketing/distribution channels/etc (i.e., "growth hacker" route). That last one is pretty hard to sustain if your product is "bad" but might work if your product is "ok". The other two require varying degrees of positive customer experiences.
Generally the tried and true way to get the job done is to build a product that reliably gets return customers to maximize customer lifetime value. Then you continually reinvest every dime you've got on sales/marketing to drive out that fast growth to give yourself advantages of scale as quickly as you possibly can.
This tried and true approach works better where you aren't in a market where you are constantly reinventing your product/company (i.e., not the tech business). For tech companies, the referral approach is the easier one to pull off.
So while I wouldn't entirely disagree with the article, I think as a consequence of perhaps being overly focused on tech, it's under appreciating the value of a proper marketing & sales strategy.
We've been launching a new product quietly, building a simple landing page[1] that asks subscribers to tweet or share the page by email after they enter their business name/email. I thought I was wasting my time but didn't want to just leech away the engagement.
The very first business that signed up immediately brought others.
We hadn't even got a prototype yet, it's how we framed the problem and offered a solution that made it compelling enough to share. OK, it's important to make it easy to do so but if you're not compelling who'll bother?
I wish I'd done this the first time round. Of course not every business in every industry can do it with social media but the principle applies. Looking at some of my friends launching businesses in competitive sectors I immediately started wondering how they could do it and, if not, why they weren't already. I suppose it's good peripheral validation as well. If your product isn't enough to make people talk what can you do to make it so?
I can think of one reason off the top of my head:
Perhaps it's because many organizations that grow very large do so by creating a market, or largely shaping it in some way. It seems that in that case, word of mouth is even more important.
As an example, I tell my friends about gyro food trucks all the time. But most of them have decided whether or not they're going to eat greasy falafel. On the other hand, if there's a new type of food vendor they've never heard of before, it will count for a lot more, because their opinion hasn't been formed yet.
I suppose the other explanation is that word of mouth is only a signifier of high quality, but I'm not sure that's all of it.
An abbreviated list of counterarguments:
Epic, CenturyLink, NBC, Waste Management, Honda, Vanguard.
I also heard about Vanguard through word-of-mouth, where everybody gave the general advice that indexing funds are much more sane than other investing systems, and Vanguard was the leader in that space.
Other commenters have argued that repeated success in an RFP environment comes from reputation (and thus word-of-mouth), but I think that's stretching too far from the original thrust of the article.
[^1] I read this in a book but Wikipedia says that its first index fund in 1976, was available to individual investors, so I'm not 100% on this.
Which companies have become huge by doing that?
So while I agree with your overall stance, I'm worried about the implied advice to wait until your product is good enough. Since the phrase by definition is difficult to assess otherwise everyone would succeed.
Well, that depends. Specifically, it depends on how scalable your advertising channel is. If your customer acquisition cost through that channel remains below your customer lifetime value, the only limit on your scaling is the working capital you have available to spend on advertising.
Advertising can take you a very long way in some cases.
Yeah, I recommend all my friends to get Exxon gas and buy GE lightbulbs...
There are some things essential to us(inelastic), and those are the things where we'll see really big changes-- Invent things that everyone uses all of the time, not something that some people use some of the time.
Maybe it's better not to jumpstart things. One strategy could be to fail faster by purposely not marketing, to quickly find out whether a product is intrinsically viral.
In those early days of running a business, spending money on marketing is no way to guarantee new revenue. Word of mouth almost always is. Plus, it's a hell of a lot cheaper.
If the companies grow you are absolutely right, but what did this companies do that they grow ?
That is the crucial question. I think there are many services like Dropbox before Dropbox exist, but nobody now them.