The following is a conversation between Salim Ismail, author of Exponential Organizations 2.0: The New Playbook for 10x Growth & Impact , and Denver Frederick, the Host of The Business of Giving.
Denver: Salim Ismail is an influential figure in the tech world, known for his role as a founding executive director of Singularity University, a bestselling author, and founder of several technology companies. His book, Exponential Organizations, achieved # 1 on Amazon’s best business management bestsellers list and received acclaim for its groundbreaking concepts.
Currently, Ismail is involved in various ventures, such as OpenExO, that helps organizations and individuals navigate and thrive in the rapidly changing world of technology and business. And he recently co-authored the updated Exponential Organizations 2.0: The New Playbook for 10x Growth & Impact, which offers fresh insights into building exponential organizations.
Welcome back to The Business of Giving, Salim.
Salim: Good to be back.
Denver: The business landscape has changed so dramatically from the startup era in the late ’90s. How have exponential technologies factored into that evolution?
Salim: The hallmark of exponential technologies is: the cost is dropping anywhere from 6 months to 30 months, and it’s dropping by 50% a cycle, right? So the most famous is Moore’s Law, which is doubling price performance every 18 months. But solar energy is doubling every 22 months. Drones are doubling every 9 months.
The magical thing in this world, I think, is two things. First, that we have a set of technologies, now a dozen of them, that are now on this doubling pattern. And the second, I think, is that the cost of computation has brought down the accessibility and the barriers to entry incredibly dramatically.
For example, in 2008 when Amazon launched Amazon Web Services, you could take computing off the balance sheet and make it a truly variable cost. And we consider that the birthplace of the exponential organization because now you can scale an organization as fast as you can scale technology.
“An ExO is an organizational design that’s using a new set of attributes that deliver 10 times better, faster, cheaper than its peers in the same space. And the way we did it was we navigated and cataloged about 200 unicorns, like… how are they scaling so fast?… And we found a set of externalities. The most important was what we call a massive transformative purpose: What fundamental problem are you trying to solve?”
Denver: What is an ExO?
Salim: An ExO is an organizational design that’s using a new set of attributes that deliver 10 times better, faster, cheaper than its peers in the same space. And the way we did it was we navigated and cataloged about 200 unicorns, like… how are they scaling so fast? For example, Uber scales by not hiring its own drivers. Airbnb is tapping into other people’s bedrooms. Waze is tapping into other people’s GPS as location sensors.
And we found a set of externalities. The most important was what we call a massive transformative purpose: What fundamental problem are you trying to solve? And then we found 5 externalities, like staff on demand, assets on demand, gamification, et cetera. And five internal mechanisms like lean startup thinking, decentralized org structures, and real-time decision making, et cetera.
If you use…the more of them to use, the better. And we found that organizations that use these characteristics deliver unbelievable results compared to the ones that don’t.
Denver: Let’s talk about MTPs. Dig into that a little bit further, and also tell me how that differs from a mission statement.
Salim: Yeah, so a mission statement typically says we are focused on delivering the best product at the best price in the best distribution channels possible, right? And it kind of says the: What are we trying to do? Answers the: What are we doing? question.
The MTP is: Why are we doing this? It’s the Simon Sinek question of: Why do you exist? What fundamental problem are you trying to solve? And we’re finding that every one of these ExOs, it was the one common thing across all of these unicorns that we saw, in the very fast-moving organizations, is: They all had that problem statement very clearly articulated.
Google organized the world’s information, right? Uber, everybody should have a private driver. And it provides in hypergrowth a very clear heuristic for how to decide and gauge priorities. It’s fantastic for recruiting and retention. People really want to be delivering impact in the world, especially the younger generation. And we find that it acts as a gelling for the overall organization. More importantly, it connects an entire community and draws a community to you.
Denver: Those are just a handful of words you gave in each example, but boy, I bet they’re hard to get to, right?
Salim: Non-trivial. It takes a fair bit of soul searching and underpinning… deep consideration, typically by the founders too, to come up with it. But it’s profoundly valuable when you do get to it.
For example, at OpenExO, ours is to transform society like a niche project, XPRIZE’s is: Deliver abundance for the world, right? And so we’re finding… TED is a good one, Ideas Worth Spreading. And so it becomes very clear. It’s a one-line statement on what fundamental problem it’s about.
And it’s really a call to action. It’s not like Google is saying: we’re going to organize the world’s information. It’s a call to action to the community saying: We’ll provide the tools and enable all of you and all of us collectively to organize the world’s information.
Denver: I love it. It really is making mantra, and it is so far from the typical mission statement, which is a bunch of gobbledygook, that nobody can ever remember: capacity building and public awareness and things that really don’t mean anything.
But I would imagine it also probably has everybody on the same page in the organization because I’ve got to tell you something: when I go and speak to people and I ask them what their number one priority is, or what their focus is… If I asked 20 people, I got 15 different answers.
Salim: Yeah. It’s like Italian politics. You just get all… you’re all over the place with that. Yeah.
Denver: All over the place. Well, let’s talk about a couple of MTPs, as examples in the nonprofit sector. And one that I know you’re familiar with is Boston Children’s Hospital: Until Every Child Is Well. Tell us a little bit about that and how it influenced its operation and its mission.
Salim: Yeah, so if you look at that, in the full framing of that statement, Until Every Child Is Well, you’re never going to stop, right? There’s no end point. You keep going down that journey, and it could take a very, very long time. It’s really kind of describing: We’re on this path, and we’re not going to stop and we’re not going to rest until every child is healthy, et cetera.
And it’s incredibly inspiring. Now, when you translate that onto the inside, let’s say the organization is trying to weigh two different projects. They simply ask the question: Which one is going to help that MTP and deliver the promise? And now you have a very clear heuristic as to where you should place your chips in terms of resources and project priorities and so on.
Denver: Yeah, yeah. So, essentially, it’s never done. There’s always a next, and there just seems to be this impatience with the status quo because there’s still always more to do, no matter what you’ve been able to do.
Another example, which again I know you’re really familiar with, is the XPRIZE.
Salim: So I’m on the board of the XPRIZE Foundation, where we give large public prizes wherever there are market failures. We’ve had a long history in giving public prizes. Napoleon, for example, found as he expanded his army, he couldn’t get food reliably to the edges of that front. And so he actually launched a public contest on how can we deliver food reliably, and that resulted in the tin can, for example.
And so we’ve been doing prizes for a long time. We’d lost the tradition, and Peter Diamandis, who’s the founder of XPRIZE, happened to read the biography of Charles Lindbergh and noticed that, okay, it was great that he crossed the Atlantic for the first time, but it turned out he did it to win a prize, which is about $3 million in today’s money.
What struck Peter was 40 teams spent $45 million in R&D trying to win the $3 million, and that launched the commercial aviation industry. And so he said, Wow! That’s a 15x ROI in terms of R&D, so hence, the birth of XPRIZE, the most famous being the Ansari XPRIZE.
And the mantra for XPRIZE is: A bridge to abundance for all. Can you create prizes that will then deliver abundance? And for example, we are right now in the middle of the $100 million Elon Musk funded carbon extraction XPRIZE. Can we extract carbon at scale out of the atmosphere? There are 1,300 teams that have met the criteria to be in the semifinals.
So the collective innovation across all of those gives us unbelievable hope that some number of those will solve the carbon extraction problem, which is probably the biggest challenge facing humanity today.
Denver: I agree. That’s fascinating. Are there any nuances, Salim, or challenges that are special to the nonprofit sector when coming up with your MTP and putting into place an ExO? Or is it pretty much the same as it would be for a business?
Salim: No, and nonprofits have an unbelievable advantage, and they have a natural MTP. They’re all there to serve some particular purpose. All you have to do is articulate that in a clear way. On the for-profit side, it’s usually a brand promise, right? Red Bull–giving you wings, okay? But on the nonprofit side, it’s actually delivering meaningful value– Red Cross or Boston Children’s Hospital.
And so the nonprofits have a natural alignment with an MTP that makes it much more easy to articulate. And we find the characteristics of the organization need to shift. For example, most organizations from the 20th century are very kind of military-structured, hierarchical organizations with lots of layers, and they’re trying to come up with a product or service and push it into the world.
Whereas ExOs tend to be much more amorphous, attract a community, or a crowd of drivers in the case of Uber, which then deliver the promise of the MTP into the world. So I think what happens is the MTP allows you to become… is the starting point for a very scalable organization, and we’re finding a ton of examples now of this.
We’re not seeing government departments, which also have a natural MTP of serving the citizenry… Take on this! Right? I got a call from the Minister of Oceans in Mauritius, and he said, Hey, we organize ourselves completely on your book because we’re a very small island archipelago, and we have to monitor like millions of square kilometers of ocean area.
So they’ve enrolled all the fishermen into a giant community. They have dashboards for everything. And it’s amazing to see what they’ve done. So we’re starting to see this operate. In fact, we call this now the decade of the ExO.
We have some pretty clear evidence that over this next 10 years or so, pretty much every organization in the world will be structured this way, every company, every nonprofit, every government department, every impact project, because it’s turning out it’s just clearly better, and we have a lot of data to support that.
Denver: And why you say every company is, probably because if you don’t, you will no longer exist over time, so it will be like elimination.
Salim: Yeah. And let me give you some data that we’ve just uncovered and that we revealed in the second book that we found incredibly powerful. In the first book, we actually scored the Fortune 100 against this model and said, Okay, to what extent is IBM using lean startup thinking? Or, to what extent is Walmart leveraging community, or not?
We created an index of the Fortune 100 rated and ranked by this model. I did a segment on CNBC Squawk Box talking about this. As we launched the second book, one of my community members works for UBS and said, Hey, let me run this through a proper stock market engine.
And he took the top 10 most ExO friendly in the Fortune 100 and compared them against the bottom 10 least ExO– mostly the most flexible and agile org structures versus the most rigid and inflexible against the model– and tracked them over seven years. And he found that the results were ridiculous.
Revenue growth of the top 10 to the bottom 10 was 3x higher; profitability was 6 times higher; return on equity was 11 times higher, but shareholder returns… what they call compound annual growth rate, CAGR… 40 times higher.
Denver: Yeah, incredible.
Salim: That’s just in the Fortune 100.
Salim: We have to like triple check the numbers because… and why? Because as the external world becomes more volatile, your ability to adapt is going to drive market value or deliver value in the case of nonprofits. And now we can demonstrate that 50 different ways.
“You get what I call the immune system response because if you try anything disruptive, the antibodies attack you, right? All our organizations are designed for efficiency and for predictability. And they’re not designed for agility, flexibility, adaptability, or speed, and we need to move to that new model. And we think we’ve stumbled across that model.”
Denver: That’s some real benchmarking. Salim, you know, a lot of organizations, let’s say, want to become ExOs. What is the difference between those who set out on that path and are successful and those that perhaps just fall a little bit short and fail to reach their goal?
Salim: It turns out, as we’ve done now 10 years of data and research on this, that it’s pretty much how many of the characteristics and attributes do you implement. For example, one of the attributes is algorithms. Are you using… are you taking the data in your organization and running machine learning algorithms against it to find insights? If you’re doing that, you’re going to be more flexible and adaptable for the future than if you’re not.
And you add that up, each one adds a little bit more: leveraging community or leveraging the crowd, or running gamification structures, or running real-time dashboards because in a fast-moving world, the faster you get information… If something’s going right or something is going wrong, you want to know as fast as possible. And therefore, we find ExOs are instrumented almost in real time, rather than say quarterly reports in the traditional world.
So we’ve got a pretty clear heuristic that the more of the characteristics that you use, the better you’ll do. And we’re finding now, if you’re starting off… if you’re a big legacy organization, your best bet is to launch an ExO off the edge, and then run that, and let that become the new gravity center. And little by little, put more and more resources on it.
So we’re finding CEOs or heads of nonprofits, for example, taking their existing organization, replicate the functionality as an ExO off the edge, because it’s very difficult to transform the mothership.
Denver: Oh, I was going to say, yeah. That’s got to be…
Salim: You get what I call the immune system response because if you try anything disruptive, the antibodies attack you, right? All our organizations are designed for efficiency and for predictability. And they’re not designed for agility, flexibility, adaptability, or speed, and we need to move to that new model. And we think we’ve stumbled across that model.
Denver: Yeah, that’s really very smart. Because it’s almost impossible to take on a legacy organization head on. You’re going to have to do a little bit of a workaround, dig underneath, or do something to the side, and then eventually have it morph because it’s just too big a challenge otherwise.
Salim: John Hagel frames this best. He says, yes, when you try anything disruptive, the people say, “Yes, yes, yes, yes,” and then they go to their office and figure out ways of killing you.
Denver: I do recall doing that. Talk a little bit about the ExO movement and the community, and the contributions they’ve made to the transformative change.
Salim: I think this is where we’re making potentially the biggest impact, is we’ve now attracted a community of consultants and entrepreneurs and innovators and technologists. That’s now 35,000 people in 150 countries, and they’re off using the tool sets in the book and in the ecosystem that we’ve built to transform their cities, their governments, their local environments.
For example, a nonprofit out of Miami that spun out of our ecosystem ran a big project against public sector in Miami to get local government to, you know, if you come across disruptive technology and you show that to government, people become very, very French and they go: “No, no, no, pas possible.” And the general answer is a no.
And what we’ve figured out how to do is attacking this immune system problem. We now have process frameworks called an ExO sprint or a fast-track sprint that solves that immune system problem in big companies or in local governments. And we actually got the public sector in Miami to embrace disruptive technology.
So a lot of the buzz around the city of Miami the last few years is because we ran this process there. We’re finding that’s now propagating around the world. It turns out maybe the weirdest thing that’s ever happened is a political consulting firm out of Europe approached me and said, “Hey, we want to partner with you.”
And I said, “How?” And they said, “We use your book to advise heads of state.” And my initial reaction was: “Totally it wasn’t designed for that. What are you talking about?” And when I looked into it, it turned out to be 36 presidents and prime ministers. I actually went around, visited 7 of them to make sure this was real.
And so there’s now a kind of a movement propagating around the world. We pretty much see that every, as I said earlier, every organization in the world will be structured this way over time because it turns out just to be better.
“The pace of change is so fast, we can’t even absorb it… It’s just moving unbelievably quickly. So you need to be organized with a different mindset that’s adaptable and accepting of new ideas as fast as they happen. Otherwise, you won’t survive in the future.”
Denver: Yeah. Yeah. And it’s so important too because I think part of the frustration we have in this world right now is that government is moving so slowly compared to the rest of society, and the citizens are getting restless.
Salim: Very. And it’s a structural problem, right? Today, by the time the FDA regulates a drug, the drug is out of date. If you’re doing a master’s in neuroscience today, a master’s degree, by the time you finish your master’s degree, you’re out of date. And you look at the unbelievable progress in generative AI and ChatGPT and stability AI, we’ve now hit what I would call the singularity there. The pace of change is so fast, we can’t even absorb it.
Denver: Yeah. Yeah. Incredible.
Salim: It’s just moving unbelievably quickly. So you need to be organized with a different mindset that’s adaptable and accepting of new ideas as fast as they happen. Otherwise, you won’t survive in the future.
Denver: I want to touch on something you talked about a moment ago, and that has to do with the workplace culture of these kinds of organizations, because what you’re talking about is, really, these organizations need to be nimble and need to move really fast. Talk a little bit about the cultural difference, the workplace culture inside an ExO compared to your traditional company.
Salim: So, in an ExO, I’ll use the example of Valve Software. Okay. It’s a software company out of Seattle with 360 people. They have no CEO. They have no reporting lines. They have no job descriptions, no management meetings, no middle management of any kind. They literally operate like a beehive. Okay?
I’m giving you an extreme example. Not all of ExOs are like this. But in that environment, let’s say there’s somebody reports a bug in the software. Well, I would grab 3 people because I know that piece of software. I’d go solve that bug, and then we disband. Every employee self-selects as to what they want to do.
That sounds like a joke, but they get more revenue per employee than Microsoft by doing this. They make an absolute fortune. And if people are self-selecting what to do, the social technology like Chatter and Zoom and Slack, et cetera, now enable us to do peer-to-peer collaboration very, very powerfully.
We have really good evidence today that peer-to-peer communication is much more powerful than traditional top-down vertical hierarchy, because you lose all the intelligence in the middle, right? And so newer organizations are decentralized. They self-select what they want. I’ll give you a very dramatic example, which is a Chinese appliance company called Haier, H-A-I-E-R.
They make 55 million fridges and ovens a year… 80,000 people. And they used to be organized in a classic top-down, pyramid structure… command and control, et cetera. CEO wakes up one day and says, I can’t meet my corporate goals this way. Blows it up. Turns 80,000 people into 2,000 teams of about 40 people each.
Each team has a P&L target. Each team elects their own little leader for that team. And each team decides to do whatever they want to do. Now you go to any business school in the world and say, “I want to make 55 million fridges.” And they’ll give you an architecture of a ton of centralized product strategy, demand forecasting, inventory management.
Turns out it’s all wrong. Who knew? Right? And so there’s a completely new model and there’s a… every MBA program today is out of date. Like let’s note that there’s not a single MBA program in the world today that can teach you how to build Uber. We have to unlearn 50 years of Harvard MBA thinking and relearn completely new models because we’re now in a totally different century where agility is the higher order bit.
Denver: Yeah. I mean, in a far less dramatic way, I’m observing that a lot of organizations are becoming like consulting firms. They’re becoming like McKinsey, Bain & BCG. And they get together and they work on a project and they do it for a couple months. They’re all interchangeable. They’re all working on different projects. It just keeps on going.
Salim: That’s right.
Denver: And as you say, the hierarchy, the job descriptions… my area is becoming just increasingly obsolete at a really breathtaking pace.
Salim: A really good example of this and again, an extreme, is Hollywood, right? Once they, in the ’50s, they broke up the studio monopoly; then Hollywood acts on this model. So let’s say somebody gets funding for a movie; all the grips and camera workers and the support system and the cast swarm onto that movie.
They deliver the movie, they do the editing, they do the final production and they, everybody, just disbands and goes on to the next…. It’s a highly efficient ecosystem as a result, delivering incredible value in a very short space of time.
Denver: Yeah, just a series of sprints in very many ways.
Denver: Yeah, yeah. Salim, it’s been about a decade since you published Exponential Organizations, not quite. What is the difference between ExO 1.0 and 2.0?
Salim: So bluntly, when I wrote the first book, it was kind of a hypothesis. We’ve scanned these organizations, who the model that…
Denver: Now, you know me.
Salim: …we’re seeing. We think this is really important, but we didn’t really have any track record or data.
Now we have 10 years of data. We conceived of the MTP idea in 2012.And over the years, we’ve seen more and more people go: Oh, my God! Purpose is the most important thing in organizations ever, et cetera. And we just have a ton more data around it. So the difference in the 2 books is the first one is… the first half is the analytical part of : What do we think in ExOs… and a few paragraphs per attribute, and then how might one apply it.
The second book does a deep dive into the model, does a full chapter on every attribute: What is it?… case studies, tips and tricks, how do you implement this, benefits and challenges of implementing, say, algorithms, and then how do you get started. So it’s a playbook where you can pick it up and say, “Okay, I want to implement dashboards”; go to that chapter, and it’ll tell you: Here’s what you need to do for this. So it’s much more a reference guide, much more of a deep dive into the model.
Denver: Yeah, I really enjoyed it. Let me close with this. Since you do hypothesize here and there, I want you to hypothesize on ExO 3.0. What do you think is going to happen in the next eight or nine years with this movement, the opportunities and challenges that come along with it?
Salim: All right. I’m going to be fairly radical here, unlike my other comments. So we have this unbelievable explosion of generative AI coming along, right? For example, in 3 to 4 years, every developer in the world will be 1,000 times more productive. They’ll be able to write 1,000 times more code. That also applies to the C-suite.
So I think we’ll start having C-suite roles as an AI, plus a board member that’s an AI that’s looking at all the decisions being made and saying, “Wait a minute. What are you guys doing over here? The data doesn’t support what you’re trying to achieve.” So you’ll end up with a lot fewer people and a lot more AI.
Right now, we have AI at the operational level: credit card fraud detection, anti-lock braking systems, fuzzy logic. And little by little, as we get the heuristics….s an easy example, all of the viewers can pick their favorite company, favorite big company, say IBM, say Procter & Gamble, say Walmart: Go into one of these generative AI and say, How would I disrupt this company? And it will literally give you: Here are 10 things you would do to disrupt that company.
So when you think about that projected larger, most of the senior management of big companies can now be massively assisted, if not replaced, by generative AI. So I think over time, we’re going to see more and more of that encroachment. Where it’ll become really surreal is the people doing the work at the coalface of the most important people.
And I think that’s where I could see things going. It’s one of those singularities nobody could have possibly predicted. Every futurist in the world, including myself 10 years ago said, “Oh, robots will automate blue collar jobs!” And it turns out completely the opposite.
Denver: Yeah, absolutely.
Salim: So totally fascinating to see what comes along. Yeah, we actually have a chatbot in the book. So you can go to OpenExO.com and literally type in to a chatbot. “I’ve got a shipping company in Brazil. How would I 10x it?” And it’ll riffle through the entire contents, corpus of the book, the interviews, the case studies and give you back: Here’s what you need to do.
Denver: I’ve already checked it out. I love it. A follow up question on that, though. What would you tell a leader today? How is leadership going to change with this new structure? What do they need to know? What do they need to be looking out for?
Salim: Yeah, this is a really, really big one and super important. So in the past, let’s say you were a global leader in Red Cross, okay? You got there because you were a regional leader in Red Cross, and before that, you ran some piece of the supply chain for Red Cross– delivering medicines to the front lines or whatever.
And you got there because of deep experience in that domain, and you knew that if something happened geopolitically, this is what you do. And by the weight of that experience, that made you capable of senior decisions. Well, today, all of that doesn’t matter because the world is moving so fast.
Today, you need to be ruthlessly data-driven and run a hundred experiments, gather the data across those hundred experiments, and act on the data because your intuition is essentially irrelevant.
It’s the same in the private sector. If you’re the head of the supply chain for BMW, you could have 20 years of experience in that. But as the electric car is coming along, you’re pretty much out of date. And all that experience goes out of view. If you’re a general in an army, and now the wars are being fought by drones, all of the experience of how you run divisions to capture some hill, et cetera, totally out of date.
So in every function, in every role that we can see, experience is giving away to evidence and data-driven experimentation.
Denver: Yeah, another way of saying that maybe is that the corporate ladder no longer exists.
Salim: That’s a great way to say it.
Denver: For listeners interested in learning more about exponential organizations, tell us about your website and what they can expect to find there.
Salim: So we at openexo.com, which is OpenExO, you find the entire community. So if you need a blockchain expert that speaks Spanish, we have like 200 people in the community. And it’s free to join, and there’s a number of layers. Premium access is like $20 a month and we have monthly meetups and networking, et cetera.
We’re actually doing a 3-for-1 special where if you sign up, you get tiers of premier access for the price of one year for the launch of the second edition of the book. And we have true tools and training all incorporated into the platform. So you can basically show up and say, “I want to transform my company in this way.” And they’ll say, “Here are the tools that you need to look up.”
And you have access to all of the expertise and experience in the community, which is now bordering on somewhere in the half a million man years of experience.
Denver: Fantastic. And the fastest and easiest way to learn more about exponential organizations is to pick up a copy of the book. It’s called Exponential Organizations 2.0: The New Playbook for 10x Growth & Impact.
I want to thank you so much for being here today, Salim. It was a real pleasure to have you on the show.
Salim: Great to be here again.
Denver Frederick, Host of The Business of Giving serves as a Trusted Advisor and Executive Coach to Nonprofit Leaders. His Book, The Business of Giving: New Best Practices for Nonprofit and Philanthropic Leaders in an Uncertain World, is available now on Amazon and Barnes & Noble.