Oct 28 2009

Add Another Zero

Talking about scale and growth is hard.  Many people talk in percentages in pre-determined time periods (e.g. let’s grow revenue 100% next year).  I find this to be relatively useless.  Instead, I like to challenge people to think on a bigger scale over a variable time period.  My favorite line of late is “add another zero – you pick the metric and the time frame.”

I used to call this “increase X by an order of magnitude” until I realized that lots of business people don’t actually know that an increase in an order of magnitude is equal to multiplying by 10.  While it’s silly, there’s no ambiguity when you talk about “adding a zero to the end of a number.”

For example, I’m an investor in a company that is growing its user base as they had planned.  However, they are coming up far short on a variety of measures, including daily active users (DAU’s) and virality measures (they have several that are good, well defined, and easy to measure.)  So, my simple statement to them is “Nice job on user growth.  How do you add a zero to the number of DAU’s and the virality measures – you pick the time frame?”

In another case, I’m an investor in a company that had a great year on all accounts.  They are the clear market leader in their segment, well funded and – while still losing money on a monthly basis – have a very clear path to being cash flow positive in 2010 on the cash they have in the bank.  We are no longer worried about them becoming a relevant company – our attention is now shifting to how to grow to be a very big and important company.  The question I asked them was “How do you add a zero to your annual revenue number – you pick the time frame?”

This question can apply to any metric.  If you have one customer, how do you get to 10 customers?  If you have 10 customers, how you get to 100?  If your users are on your site for 1 minute a day, how do you get to 10 minutes a day?  If you are generating $100,000 per customer, how do you get to $1,000,000 per customer?  If your largest customer has 1,500 seats of your software (or service) deployed, how do you get to 15,000?  Add another zero – you pick the time frame.

While there are natural limits to this when you approach it top down, it becomes very powerful when you approach it bottom up.  I call this cascading leverage.  For example, if you focus on individual user behavior and try to add zeros to key user-based metrics, you’ll increase the metrics all the way up the chain.  If you happen to find two metrics that impact each other (e.g. you get value out of the growth of X multipled by the growth of Y), you can actually get 100x impact on higher order metrics if you can add a zero to both of them.  Understanding the linkage from the bottom up also helps create better clarity on what to measure and where to invest to grow the business dramatically.

The variable time period is a key aspect of this.  I tend to match the time period up to the natural rhythms so I can remember them – daily, weekly, monthly, quarterly, annually, two years, five years, ten years.  But this isn’t necessary – any time period is fine.  The key is to let the time period vary by metric to which you are adding a zero as this changes the texture of the conversation (e.g. you tend to have a very different conversation when you talk about adding a zero to a metric over the course of a month vs. over a course of a decade.)

So – as you go into your annual planning cycle for 2010, try the “add another zero” approach on some of your numbers. Or, get granular, and try it today on some of your underlying metrics.  Just don’t default into “let’s grow revenue 100% in 2010”.