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An exponential business model is simply one that leverages tech & innovations to scale a business quickly and efficiently. When compared wot more conventional business models, it’s distinguished by the fact that it is primarily focused on the generation and acquisition of value through the application of various types of technology, including networks and platforms.
The use of automation, data analysis, and various types of machine learning algorithms are typical components of exponential business models, which are intended to facilitate the rapid expansion of the business. It’s important to note that the capability to generate a network effect is one of the most important aspects of a company model that scales exponentially. The effect happen when the value of a product/service improves as more people use it,, which happens when more people use the product or service.
In addition to concentrating on the production of products/services, exponential enterprises are also concerned with the development of various platforms. The capability of an exponential business model to develop new markets while simultaneously disrupting old ones is among the most significant advantages it offers. As exponential, enterprises can produce goods and services that are less expensive, more quickly produced, and more efficient than their traditional counterparts through the use of effective tech and innovation.
Creating network effects, using data, and constructing platforms are the primary focuses of this model, with the end goal of driving rapid development and disrupting current businesses. And it’s expected that as technology keeps improving, it’s likely that more and more businesses will start using an exponential business model to create new opportunities and boost growth in the digital age.
Exponential Growth
It’s a type of growth that occurs when a quantity increases rapidly over time. It happens when the rate at which the quantity increases is directly proportional to the quantity itself. It means that as time goes on, the quantity grows at an increasingly faster rate.
To achieve exponential growth, businesses that adopt an exponential business model typically focus on leveraging tech to automate processes, streamline operations, and increase efficiency. They also prioritize innovation, experimentation, and rapid iteration, enabling them to quickly test and scale new ideas and products. This approach often requires a willingness to take risks and make bold decisions, as well as the ability to adapt and pivot in response to changing market conditions.
Difference Between Linear & Exponential Business Model
The linear growth model (pipe model), is a more gradual approach to business growth that is popular among many businesses, especially eCommerce owners. This model is easy to understand & implement, making it a popular choice for businesses that are just starting out. This approach is more methodical and requires a long-term view of growth. The emphasis is on building a solid foundation before expanding into new territories or product lines. It is a successful strategy for businesses looking to build a sustainable and profitable operation.
The exponential growth model involves a competitive race to the top, with companies vying to be the first to market with a game-changing product. This is because the first-mower advantage often results in the greatest reward, making speed to market a critical factor in success.
The linear growth model is simple to grasp and offers a more measured approach to growth. It allows you to invest in materials, create a product, and then sell it in a single location, allowing you to scale your business customer by customer. Aiming to secure a 10% increase in profits or a 10% reduction in costs. But, it’s slow and may not be suitable for businesses seeking rapid expansion.
The exponential growth model involves releasing new products into the market to quickly and efficiently scale your business. It prioritizes being the first to market with a killer product, which can yield significant rewards. It also involves a higher level of risk and requires continuous innovation to maintain growth.
Ultimately, it totally depends on your business goals and resources to choose a linear or exponential growth model.
Why Is This Shift Happening?
Growing a company typically involves taking baby steps, steadily climbing an upward linear curve that shows where you’ll be in a few years if all goes well. But for many, the question has always been, “What if you want to accelerate this growth?” Although it requires money and people, many companies still want to scale faster and more effectively, and that’s where an exponential business model comes in because it focuses on creating profound change on a global scale rather than just solving immediate problems or meeting simple needs.
Elements of Exponential Business Model
Market Potential
The ensure the success of an exponential business model, it’s essential to have a sufficient amount of room for expansion. It means the problem you’re attempting to solve must be serious enough to merit a considerable number of people paying for the product/service you’re offering.
Customer Value Created
To achieve considerable customer adoption, you need to provide a value proposition that is much superior to what your competitors are providing. The level of superiority is commonly referred to as the “10x factor”, and it is necessary to achieve significant customer adoption. It’s not enough to merely provide a product/service that is marginally superior; rather, you need to identify a value proposition that is ten times better than what is currently offered on the market.
Customer Acquisition
Any company that wants to achieve exponential growth needs to be able to consistently bring in new clients. This is only feasible if the price of the good/service being supplied is much lower than the cost of recruiting a new customer.
The most effective exponential business models have features that are organic or viral, which enable companies to acquire clients without incurring large customer acquisition expenditures – which is why exponential business models are so successful. In contrast, companies that invest a significant amount of money into marketing for each new customer have a difficult time achieving exponential growth.
Customer Lifetime Value
CLV consists of two essential components: the amount of time that a customer spends as a customer of your company & the amount of value that you can earn from each client during that period.
When it comes to B2C, establishing a long-term relationship with customers requires becoming an integral component of their routines. It helps customers develop a pattern of behavior that results in long-term customer loyalty and value. For the B2B business, it’s vital to integrate your product/service into the business models or operations of your clients to build a strategic and long-lasting relationship with them.
In the end, clients who remain faithful to your brand and increase the number of products they buy over time are a direct contributor to exponential development, particularly in business models based on subscriptions.
Economies of Scale
Firms must design their operations with economies of scale already built in if they wish to experience exponential growth. As a result, the company can increase its profit margins and decrease its unit costs as it expands, which leads to increased profits as well as resources that can be utilized to strengthen other value drivers.
9 Design Principles for Exponential Transformation
Customer Segments: solve a problem for the masses
Because of the advancements in technology, businesses are now in a position to enter uncharted areas of the market on an unprecedentedly massive scale. The population is quickly approaching 7.5B, and firms with exponential growth models have more ability than ever to help close the gap that will result from the population increase and the resources required to support it. Businesses start off by providing a fundamental good/service to address a certain unmet want from their clientele.
Value Proposition: Info-based services and platforms
Companies are not just modernizing their old product/service offerings, but also generating totally new markets as a result of the widespread adoption of digital tech. Any company must investigate how and what aspects of their current value proposition might be digitized. If you do this, you’ll not only be able to better serve your current clients, but you’ll also increase the possibility of establishing new foundational exchanges of value.
Relationships: build a community of fans
It’s vital to nurture a client base that’s loyal and enthusiastic, and then cooperate with that customer base to achieve a business that is 10 times more effective than others. Giving users the ability to modify fundamental features, such as the filters on Instagram or the augmented lenses on Snap, gives them the ability to create original content that can be shared across multiple platforms, which serves as a viral distribution and marketing channel.
Channels: multi-modal and social
Many exponential businesses want to increase the value of products/services. This is why they use social cooperation to connect their physical and digital outlets. It is effective because it makes use of material that was contributed by users and amplifies it through network externalities. Essentially, the value of the service will increase in proportion to the number of users who contribute to the platform.
Key Activities: automated and scalable processes
By automating manual processes, cutting-edge tech is radically altering the conventional approaches taken in manufacturing and distribution. In addition to this, the organization has effectively transformed its cloud computing and data storage capabilities. Amazon’s success in the e-commerce is a testament to how automation of the business process within an exponential business model leads to massive exponential growth.
Key Activities: lean approach
This strategy emphasizes the quick iteration of experiments and learning, which not only permits taking risks but also provides useful data that can be studied and analyzed. From their success, we can learn that companies can better position themselves for development and success in a continuously dynamic business landscape by applying lean processes across various departments throughout the organization.
Key Activities, Resources, Partners: Algorithm to the Core
A catalyst for exponential growth is the ability to adapt to trends and technological advancement changes. In today’s data-focused age, the need to understand and implement the proper use of algorithms has become an essential tool in the search for exponential growth.
Key Resources: Networked Culture
Organizations need to encourage networked collaboration and real-time information exchange among their staff members to realize the benefits of a 10X business model. It is possible to decentralize decision-making and speed up innovation with the help of a culture that is friendly and transparent, and that gives workers autonomy.
Partners: Build Uncommon Relationships
Working together with ‘uncommon partners’ from a variety of fields can result in the development of very effective exponential business models. The integrated value principle is very potent because it encourages firms to assess whether they are required to possess all of their resources or not. Example: Benz & Matternet have collaborated to develop a delivery service.
Different Exponential Business Model
Network Effects
It’s a straightforward way of saying that people who join a platform later add value to the services it offers. It occurs when more people or users join a platform after it has already been established. When the number of people taking part in an activity goes up, the value of the goods/services also goes up. When more people use the network, it makes the experience better for everyone, which encourages more people to join because they can see how useful the network is.
Examples: Social Media (Facebook, Instagram, TikTok, Twitter, etc.); E-Commerce (Amazon, eBay, Etsy, Alibaba, etc.); Recruiting (LinkedIn, Indeed, GlassDoor); Ride-Sharing (Lyft, Uber); Delivery Service (Shipt, Uber Eats, DoorDash, Postmates); Freelance (Fiverr, Upwork, Thmbtack); User Reviews (Trip Advisor, Yelp, etc).
Platform-Based Business Models
With the use of network effects, a platform business model provides value by facilitating interactions between individuals, user groups, and the users. It often has two sides: the supplier side and the demand side. The model involves Consumers, Suppliers, and Platform.
Examples: Amazon, TikTok, Apple, Fiverr, Instacart, GitHub, JustPark, Zipcar, uTest, Wax Marketplace.
Subscription Models
It’s a type of business model in which customers pay a fee regularly to use your product or service. The fee can be paid monthly/yearly.
Examples: Netflix, Apple One, Amazon Prime, Google, Scribd, HelloFresh, Porsche Drive, Falck.
Freemium Models
It is a sort of business model in which consumers are not charged for access to the core functionality of a product or service but are charged a fee for access to additional or enhanced functionality. It’s especially popular in the software and web-based business worlds.
Examples: Spotify, Dropbox, LinkedIn, ChartExpo, PPC Signal.
Automation-Based Business Models
This model is based on algorithms that automate some important tasks to provide value to users, characterized by their heavy reliance on automation. Typical example is a Website.
Ecosystem-Based Business Models
Ecosystems are made up of actors who work together to solve a problem for an end user. To effectively plan for an ecosystem, you must first draw a map of it, then figure out where the value lies or is concentrated on that map, and finally, plan for the future based on your current assets and your goals for the future. The models are usually made up of a group of services, products, or even companies that work together to reach a common goal.
Google, its primary search engine serves as its basis, and GG also offers a variety of additional services, including Drive, Gmail, Maps, and so on. Other examples are Apple, Amazon, and Microsoft.
Examples of Exponential Business Models
Airbnb, Uber, PayPal, Etsy, Squarespace, Netflix, Amazon, Spotify.
Steps to Design an Exponential Business Model
Start Fresh
The only way to create, build, and scale a new business model is to do it on the edge (so you can think outside the box). If you’re attempting to do it from within an existing organization, or as a whole new project, if you’re an entrepreneur considering creating a new exponential organization.
Define Your MTP (Massive Transformative Purpose)
A startup is mainly focused on making massive profits, while ExOs strive to make the world a better place. Because the major problems in the world are also the most significant opportunities for businesses, doing good and making money are not mutually exclusive. The most effective approach to developing a brilliant Massive Transformative Purpose (MTP) is to think big and outside the box. Richard Branson: if the dreams of your company don’t scare you, they are too tiny.
Find a Global Problem and a Scalable Solution
After thinking about a global problem, the next thing to do is develop a technological solution that can be used worldwide. This is the only way to grow and expand. Some solutions may not seem possible right now but might be in a year or two. Don’t plan linearly, instead, plan exponentially.
Define Your EXO Canvas
Think about how to use the ExO Attributes to connect your problem to the abundance already there and solve your problem exponentially. We’ve seen that going through all the ExO Attributes is the best way to scale exponentially. You don’t have to use all the ExO Attributes, but if you define the MTP and use at least four of them, your chances of getting exponential growth go up.
Define Your BMC Based on the EXO Canvas
To grow fast, it’s recommended that you use the exponential business model (BMC), and it’s crucial to remember that service-based & product-based models require expanding your operations & expenditures as your sales volume does. Some types of businesses may expand rapidly: Platform-based models, Automation-based models, and Ecosystem-based models.