10x Your Business: Why Transitioning From Linear to Exponential is Crucial w/ Salim Ismail | EP#44

0:00This is a transition in business that we've never seen before. How do we change the game? Computation is becoming infinite and storage is becoming infinite and that's the simplest way of framing. Over 100 ,000 years of human evolution we've lived in a world of scarcity. And for the first time in the history of humanity, we're now building business follows around the wellness. We're going to see the first three -person billion -dollar company emerging in the next year or so. You will be left behind very fast. In this world of exponentials, if you are not disrupting yourself and someone else is, you got to skate to where the puck is going to be.

0:38Everybody, welcome to Moon Shots in Mindsets. I'm here with my dear friend, Selimis Meil, the first CEO of Singularity University, the CEO of exponential organizations, and my co -author on a brand new book, Exponential Organizations 2 .0. So, Selim, we are living in a different world and I want to wake people up to the fact that if you're not building an exponential organization, you are moving backwards. The only kind of organizations that are going to survive this decade are exponential organizations. So when I make that claim, everybody's saying, well, what the heck is an exponential organization?

1:12So let's start with that. How do you define an EXO? So let me touch on the idea that for 100, 200, 500 years we've been building organizations in a very military top -down hierarchical command and control style. And that worked in a world of scarcity. We had to, you knew your market, you had to go out and figure out how to attack that market. You would divide strategies, et cetera. In the 21st century, that doesn't work anymore. Old organizations were designed for efficiency and for predictability. And today, we architected for adaptability, agility, flexibility, and most of all speed. And so if you're not operating very fast today, you're never going to make it.

1:52And we're seeing over the last 10, 12 years, a completely new breed of organization that we've never seen before. And it was very hard this conversation 10 years ago, but today with the rise of chat GPT and the explosion of Tesla and others, this is a much easier conversation. And now we just need to explain it a bit better. Yeah, I just saw a tweet either day from a friend of both Vars that said, we're going you the first three -person billion -dollar company emerging in the next year or so. And I believe it, right? So I mean, that is primarily an exponential organization. So when I think about an exponential org, in our book, we're talking about what drives it and the ten attributes of those organizations.

2:35And we'll be talking about those. The reality is we're getting to a point where the marginal cost of supply of your product service is trending towards zero and the marginal cost of distribution of your product or service is trending towards zero and acquiring that next customer and you know that's an explosion on the planet. It used to be that your your clients your the people you sold to were in your town your village you know maybe within a hundred kilometers now it's global at an increasing rate so let's get into it. Talk to me more about an EXO. Yeah so let you test on a really important point.

3:16Let's look at the economic driver here. When you're running a business, you're worried about a costum of demand and cost of supply, right? And hopefully you're on the right side of the equation. What the internet did for the first time ever, it allowed us to drop the cost of demand exponentially, online marketing, referral marketing, every Silicon Valley company is trying to go for that viral loop, which drives your acquisition cost to near zero, right? Amazing. What exponential organizations have figured out is how do you drop the cost of supply to near zero? So you look at Airbnb, the cost of them adding an incremental room to their inventory is almost zero.

3:49Whereas if you're high, you have to build a hotel, same with Uber adding a car to their fleet or ways, etc. We have now a whole category of businesses where they've learned how to drop the marginal cost to supply. Now you can scale a business as fast as you can scale technology. We've learned how to scale technology, we're building the actual business as painfully incremental and linear. Now we're seeing this new breed of business where they can scale the actual organization as fast as you can scale technology. We have never seen this before. And over time, every organization will operate in this way.

4:22Yeah, but there's a lot of folks out there that saying, listen, I sell this widget. There's no way in the world I can scale it globally or I can bring the cost down to zero. And I think people need to start to look a lot more imaginative. I know in my previous book, bold with Stephen Kotler, we wrote about the six Ds of exponentials. And just to recall what that is, right, and tell some stories there, the six Ds are that any of these exponentials begin very deceptively slow. We'll get back to that. And then they eventually become disruptive. And when they do, they dematerialize, they demonetize, and they democratize products and services.

5:02The pro typical example that I give in the book, and I love it, because it's just a great warning for folks, was the story of Kodak and the digital camera. So, you know, what most people don't realize is that Kodak actually invented the digital camera about 20 years before they were at their peak in the late 70s. A guy named Steven Cesson had come up with the digital camera in Kodak's labs. and back then it took .01 megapixel images. I can imagine that right, in black and white and they recorded it on a tape drive. And you know, I can imagine this and I don't have written record of this but I can imagine Steven Sassan going into the board room of Kodak and going, here it is, the future of Kodak, it takes .01 megapixel images in black and white and the board going, you're nuts, you know, that's a toy for kids, we're Kodak.

5:55We make beautiful, higher resolution images and besides we're in the paper and chemicals business. And so that's the challenge that these companies are locked into their current business models and exponentials are fundamentally at the core disrupting business models. So Kodak says, if this digital camera thing becomes a thing, we're going to be out of the paper and chemicals business or a profit center and we'll be decimated. A quick break from our episode on June the 6th. Selim and I are going to be running a free three -hour workshop on how to actually build and design an exponential organization.

6:31We'd love to have you join us. If you join us on June the 6th, first of all, you'll get free access to the book, Exponential Organizations 2 .0, access to an AI that we've built that allows you to query the book and helps you design your exponential organization. It's June the 6th, it's three hours, it's free, we've never done this before. Click on the link below, dmandis .com, backslash, EXO, and join us. All right, now back to the episode. I think it's really important here to touch on the linear to exponential stuff, right? Because, you know, as you and Ray talk about a lot, if you take 30 steps linearly, you'll go 30 meters, you'll get to the back of the garden.

7:10We can all predict really well where we are a third or two thirds of the way in that progression. And all of our education and intuition and training around the world is around that paradigm linear. When you go to a Moore's Law and you go to an exponential where things are doubling, well, 30 doubling steps to 4, 8, 16 gets you to a billion meters, right, which is way past the bottom of your garden. It's 26 times around the world. And most importantly, it's really hard to gauge what is the third of the way or two thirds of the way in that progression. Our brains don't compute that way. We clearly don't see it.

7:43All our brains are linear. So the challenge that you've highlighted, raised highlighted, and many of us kind of following is the fact that we have this completely different heuristic on which the world is operating. And if you're not operating on the heuristic going forward, you will be left behind very fast. So, you know, to take that cutic example and extrapolate it, you digitize in the early days of that digital camera, it was .01 megapixels, .02, .04, .08. Poor Steven Sassan is showing this and it's like a straight line on a curve and they're going, I don't get it. What's the big deal here?

8:18Well, 30 -doublings later, it's not .01, it's, you know, 10 -100 megapixel cameras and they're bankrupt. Literally, and they go bankrupt. And the realization was that digital camera, once they disrupted the industry, it dematerialized cameras. You know, no one has a physical camera or a very few of physical camera. It dematerialized film. And then the marginal cost of a happy pick was zero. The cost of distribution was effectively zero. it demonetized it and then democratized it and now we went from I don't know you know millions of or tens of millions of happy picks developed to trillions of happy picks developed around the world.

9:00We look at it in three ways. We say the first thing that happens is you demonetize it, right? You take the cost of the marginal cost of taking an extra photograph goes to zero. Because of that, the domain explodes and now we're taking billions of times more photographs that cost us gone. But the third thing that's super subtle but really important from a business perspective is you change the problem space. So what we talk about there is in the film photography world, you're trying to optimize around scarcity. It's a dollar per photograph. It takes a few days to get your prints back and you get a whole bunch of business models around that scarcity.

9:35I made offer really expensive cameras. I made published books on composition. I made offer courses on how to to do the best photograph and you're teaching people to optimize for scarcity. That's brilliant. Now you go to people being able to take 1 ,000 photographs at zero cost, the problem is not now, how do I carefully craft this image to compose the best image? The now the problem we have is we have six copies of our photographs on eight different online services and you can't find anything. And you've gone from a sourcing problem to a filtering problem. And most importantly, all the business models that cropped up around that scarcity like expensive cameras, etc.

10:11are gone. And this is where you talk about the dematerialization of it and the complete demonetization of it. The cost of taking a photograph today is free. Yes, it is. And it's interesting, right? In the same year that Kodakko's bankrupt, Instagram comes out of no place, right, and gets acquired by Facebook for a billion dollars with only 13 employees on their balance sheet. That was insane. It was like a break the way of thinking moment. And note that when Facebook acquired Instagram, most of the business world said, what the hell are you doing? How do you pay a billion dollars for this pitch of a company with 13 people?

10:56And this whole paradigm I think is immersion in Silicon Valley because people naturally understand and exponential curves better than the rest of the world. And my, you know, listen, my rant for entrepreneurs out there is if you're in a company that's not actively digitizing, dematerializing, democratizing, and demonetizing your products and services, you will be dead within 10 years time. You've got to be doing this. You've got to be looking at, okay, how do we change the game? How do we digitize this product that we're creating, or how do we dematerialize and democratize it? Because we need to move the marginal cost down to zero and we need to make it accessible to the world.

11:41And this is fundamental to what an exponential organization is in the biggest way. So we saw this, you know, you talk about cameras as a product, but then we saw entire industries going this way, like music. You had about seven or eight major music studio selling cassettes or CDs or DVDs, right? Then we digitize music. We dematerialize the cassette decks and everything. And all the major studios essentially disappear and now you have two platforms, iTunes and Spotify selling you abundance on a subscription model. Yes, I love that. So this transition from a physical scarcity -bound environment to an abundant digital subscription model is going to happen in energy.

12:20It's going to happen in healthcare. It's going to happen in education. You heard it here first folks. So what are you doing to go and make to change your model from scarcity to abundance? Right? Because the majority of the human, over a hundred thousand years of human evolution, we've lived in a world of scarcity. We've lived in a world of, I have this and I'm going to meter off a little bit to you and charge you a lot for it. I'm going to put a fence around something and say, these are mine. The old model was taken asset or workforce, put a legal boundary around it and sell access to scarcity.

12:54Yes, and whether that was a hotel on a beach or a great design team or a chef in a restaurant or consulting business I'm gonna hire the best consultants right now and now that's right. It comes along. It's gonna bust that model big time Well, this is where I think your work around abundance is so critical, right? 10 ,000 years we've been building businesses around scarcity if you didn't have scarcity You didn't have a business pretty much and for the first time in the history of humanity We're now building business bottles around abundance. And that's a completely different animal. And it's incredible this transition and the need for new entrepreneurs to understand that and build businesses based on this new paradigm good for it.

13:33We are heading towards a zero marginal society in some ways, in other words, marginal cost for things. And what happens is it blifts the world, right? We can head to a world in which we have access to all the food, water, energy, healthcare, education. and even time and people go, how do you make time more abundant? Well, we're making time more abundant by, first of all, extending human lifespan, which is a whole different conversation, which we've had in on the spot cast. But it's also the fact that, I remember and you do as well when I went to the library searching for a book and would take three hours of time and I would hope the book was there.

14:11And if it happened to have the reference I wanted, now from three hours it's reduced down to three seconds on a Google search. It's unbelievable. I mean, if you just look at a prototypical EXO's we call it as Wikipedia, right? It kind of took the world's knowledge and with the community to help moderate the entirety of the world's knowledge now sits in Wikipedia. And the scale of it is unbelievable. Everybody, let me take a quick break from our episode to talk about something important for your diet. Now, as you know, I'm a huge longevity in health champion. Part of my focus is on exercise, I'm super careful on what I eat.

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16:17Trust me, you'll love them as much as I do. Now back to our episode. Let's talk about why this is happening now, because it is happening now. We've seen the roots of this really with, like you said, the raise, the rise of Amazon web servers, but also the internet and in a whole slew of things. But underlying all of this, I would say is Moore's Law and what Ray Kurzweil calls the law of accelerating returns. I'm gonna show an image here one second. So this is the law of accelerating returns. People have heard of Moore's Law, which is everything to do with Gordon Moore and Intel and the integrated circuits.

17:01So, Gord Moore creates the integrated circuit, the first one, two transistors together, back in the late 50s by 1965 he publishes a paper that says, you know, we've noticed something that the number of transistors on a piece of silicon is doubling every 12 to 18 months and it's likely to continue. And it continued for 50 plus years, we're approaching 60 years right now, it's not slowing down. This is a curve of 122 years of Moore's Law. What Ray says is Moore's Law is only about the integrated circuit. Everything before then and after the integrated circuit is what he calls the law of accelerating returns that we're using tools to create faster tools that build faster tools and so on.

17:45What you're seeing on this image is on the left hand axis. it says calculations per second per constant dollar. And it's like down at the bottom, you're not gonna be able to read it, but it says the analytic engine, right? And then it goes on to IBM tabulators and you know, you've got the ENIAC and all of those along the way. And it's like 10 to the minus seventh calculations per second per dollar. I mean like really slow computational power. And then you see this, it's plotted on a log scale. And on a log scale, a straight line is exponential, but it's curving up for us, which tells me that the speed at which is increasing is itself increasing.

18:29It's not slowing down. And on the right -hand side, Steve Jervitz added a few data points, and this is around Google's new computational capability and Tesla's new computational capability that it's accelerating and this goes out to 2025. So Moore's Law is not slowing down. One of the things that's important in the United of Unite Talk about is this idea of nested -esque curves that every technology has this period of rapid growth and then it runs out of steam like bacteria growing in a medium. But then some other technology takes over for it. We had mechanical computers and then relay computers and then vacuum two computers and transistors and integrated circuits and then you know whatever comes next three dimensional chips.

19:18Yeah. This I think was the real genius of Ray Kurz while they identified this right because every time you have some technology like vacuum tubes are transistor do you have that S curve and it levels off and people go well okay that's the end of that technology etc. And he noticed that whenever you have an information based environment when you reach the end of one S curve something else always takes over the curve And now we have, we're reaching the end of their life cycle of integrated circuits and all the technology Press are like, well, this is the end of Moore's Law, we're done, etc. But we have a bunch of technologies like 3D chip design, optical design, quantum computing, etc.

19:54You remember our colleague Peter Ralf Merkel, right? I had a chat with Ralph and I was saying, what do you think about Moore's Law? He goes out, I just published a paper on Thermodynamically reversible computation using molecular bonds so you can do computation without heat He was, I think we get 10 orders of magnitude just out of that, right? And you're like, wow. So he's looking 20, 30 years down the line, but basically, computation is becoming infinite and storage is becoming infinite. And that's the simplest way of framing it. I had people literally, when a month's stage talking to an audience, people go, when this is going to slow down, I was like, it's not going to slow down.

20:29There is no on -off switch. There is no velocity meter. You can't slow this stuff down. It's accelerating. And I think that's one of the important things about an exponential organization that people need to realize that you've got to skate to where the puck is going to be. Just to finish that exponential discussion off. Yeah, please. We've realized that once you start an exponential doubling pattern, that's information -based. It doesn't stop doubling. And it's the cognitively we have the hardest time getting our heads around that piece of it. But Ray was the first identified that this just keeps going and more drones are doubling every nine months in their capability, right?

21:07In neuroscience, the resolution at which we can imagine the human brain is doubling every year. We now have a dozen technologies that are operating on this curve and we keep adding to that basket as we digitize more and more domains. So we're coming into this world of now multiple technologies all accelerating at the same time. And when I talk about this, you know, in the history of humanity, at any point, maybe one technology is accelerating, maybe another, we've never had a dozen all accelerated at this. Well, I would bet, pal, it's 100, all built on top of these other technologies, right? You're building on top of computation.

21:41And you know, in my last book, Future is Faster, I talked about convergence of these technologies. And we talk about that a lot in exponential organizations. And it used to be that you could be an expert in any one technology and build a differentiated company. But today it's like the merger of two, three or four of these that are making these EXOs, reinventing healthcare, reinventing the legal system, reinventing everything. Well, if you take, say Uber, which is one of our prototypical EXOs, it's the doubling of location -based services and payment services and online and the whole bunch of things all coming together that suddenly make that magic.

22:16And then you add autonomy on cars and electric on cars and all of a sudden the marginal cost drops by another 400%. And then all of a sudden, it's a different game. And so when I'm talking to entrepreneurs out there saying like, how should I think about this? Where should I be going? The advice that I give is number one, you've got to be skinny and aware the puck is going to be. You can't build a company based upon the technology that exists today because by the time you've built it, it's going to be out of date. The second thing is find something that hasn't been digitized, dematerialized, demonetized, and do that.

22:59I'm doing that right now in the healthcare industry aggressively because I want to crush the healthcare industry, different topic of conversation. But it's those, what advice do you give to entrepreneurs? Well, I think the key is to build an organization and reinvent yourself every year or two. In the past, you've built an organization and set it on a path to turn last forever. And the world is moving too fast today. You really need to reinvent yourself every year or two. And as the metabolism increases, you have to do every six months. Because the stuff that you were, you know, the story of alumni, I think is really relevant here.

23:35They were building a high -speed gene sequencing machines. The world leader at this. And it turns out the shelf life for a high -speed gene, it was nine months. We only had nine months to sell this really expensive machine. The product development cycle is 28 months. So they had to have four product development cycles running in parallel to hit the nine -month shelf life, sale shelf life. That's insane. That's just insane if you think about manufacturing cycles and the expertise and how you discipline around managing those layers. This is a transition in business that we've never seen before where markets are appearing overnight and markets are disappearing overnight.

24:14And I think the rise of chat GPT just highlights it brings it all into sharp I love it. What we were talking about prompt engineering is the thing to do and then auto GPT comes out doing its own prompt engineering and that's the thing in the past Yeah, I mean so I pretty I pretty insious here's you how long you please I predicted the prompt engineering as an industry with last about five months and it turned out to last about five weeks So so there you go Yeah in this in this world of exponentials if you are not disrupting yourself then someone else is bottom line. And so, you know, we first identified this 10 years ago and you and I worked closely on the original book of EXO and we identified this model.

24:53And over the last 10 years, we now have unbelievable data to demonstrate that this is the only way, these are the characteristics. And if you're not following these characteristics and you don't have these attributes, you won't grow 10x. And if you're not doing it, somebody else is. So it pretty much we're now clear that every company, nonprofit, government department, impact project will basically over the next decade be organized this way. Otherwise it won't be around. Everybody at his Peter, a quick break from the episode. I'm a firm believer that science and technology and how entrepreneurs can change the world is the only real news out there worth consuming.

25:29I don't watch the crisis news network. I call CNN or Fox and hear every devastating piece of news on the planet. I spend my time training my neural net the way I see the world by looking at the incredible breakthroughs in science and technology. How entrepreneurs are solving the world's grand challenges. What the breakthroughs are in longevity. How exponential technologies are transforming our world. So twice a week I put out a blog. One blog is looking at the future of longevity, age reversal, biotech, increasing your health span. The other blog looks at exponential technologies, AI, 3D printing, synthetic biology, AR, VR, blockchain, and these technologies are transforming what you as an entrepreneur can do.