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

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This 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 it.

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 models around abundance.

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, then someone else is. You've got to skate to where the puck is going to be. Everybody, welcome to Moonshots and Mindsets. I'm here with my dear friend Salim Ismail, the first CEO of Singularity University, the CEO of exponential organizations, and my co author on a brand new book, Exponential Organizations 2.0 Saleem. 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 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? So let's start with that. And 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. You knew your market, you had to go out and figure out how to attack that market. You would devise strategies, et cetera. In the 21st century that doesn't work anymore. Old organizations were designed for efficiency and for predictability. And today you need to be architected for a 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. And 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 ChatGPT and the explosion of Tesla and others, this is a much easier conversation. And now we just need to explain it a bit better. You.

Yeah, I just saw a tweet the other day from a friend of both of ours that said we're going to see 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 talk about what drives it and the 10 attributes of those organizations, and we'll be talking about those. The reality is we're getting to a point where the marginal cost of supply of your product or 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, that's an explosion on the planet. It used to be that your clients, the people you sold to, were in your town, your village, maybe within 100km. Now it's within global at an increasing rate. So let's get into it. Talk to me more about an exo.

Yeah, so you touched on a really important point. Let's look at the economic driver here. When you're running a business, you worry about cost 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. Whereas if you're Hyatt, you have to build a hotel. Same with Uber. Adding a car to their fleet, or Waze, etc. We have now a whole category of businesses where they've learned how to drop the marginal cost of supply. Now you can scale a business as fast as you can scale technology. We've learned how to scale technology, but building the actual business was 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.

Yeah, I bet you 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. I think people need to start to look a lot more imaginative. I know in my previous book Bold with Steven Kotler, we wrote about the six Ds of exponentials. And just to recall what that is and tell some stories there, the six Ds are that any of these exponentials begin very deceptively slow. We'll get back to that. Then they eventually become disruptive and when they do, they dematerialize, they demonetize and they democratize products and services. The prototypical 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. 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 Sasson had come up with a digital camera in Kodak's labs. And back then it took 0.01 megapixel images. I can imagine that right in black and white. And they recorded it on a tape drive. I can imagine this and I don't have a written record of this, but I can imagine Stephen Sasson going into the boardroom of Kodak and going, here it is, the future of kodak. It takes 0.01 megapixel images in black and white. And the board going, you're nuts. That's a toy for kids. We're Kodak. We, we make beautiful high 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, our profit center, and we'll be decimated. A quick break from our episode. On June 6, Salim and I are going to be running a free three hour workshop on how to actually build and design an exponential organization. Would love to have you join us. If you join us on June 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 6th. It's three hours. It's free. We've never done this before. Click on the link below diamandis.com 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. We 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, 2, 4, 8, 16, gets you to a billion meters, 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 a third of the way or 2/3 of the way in that progression. Our brains don't compute that way. We don't see it. All our brains are linear. The challenge that you've highlighted, Ray's highlighted many of us following is the fact that we have this completely different heuristic on which the world is operating. And if you're not operating on that heuristic going forward, you will be left behind very fast.

So to take that Kodak example and extrapolate it, you digitize. In the early days of that digital camera, it was 0.01 megapixels, 0.02, 0.04, 0.08. Poor Stephen Sasson is showing this, and it's like a straight line on a curve. And they're going to. I don't get it. What's the big deal here? Well, 30 doublings later, it's not 0.01. It's 10, 100 megapixel cameras. And they're bankrupt. Literally, they go bankrupt. And the realization was that digital camera, once it disrupted the industry, it dematerialized cameras. No one has a physical camera, or very few have a physical camera. It dematerialized film. And then the marginal cost of a happy picnic 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, millions or tens of millions of happy picks developed to trillions of happy picks developed around the world.

We look at it in three ways. We say the first thing that happens is you demonetize it right? You take the cost out. 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. The cost is 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. You get a whole bunch of business models around that scarcity. I might offer really expensive cameras. I might publish books on composition. I'm at offer courses on how to do the best photograph. And you're teaching people to optimize for scarcity.

It's brilliant.

Now you go to people being able to take a thousand photographs at zero cost. The problem is not now, how do I carefully craft this image to compose the best image. 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 expenses of cameras, etcetera, Are gone, right? 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 Kodak goes 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, right? 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 titch of a company with 13 people, right? And this is, I think this whole paradigm, I think has emerged in Silicon Valley because people naturally understand exponential curves better than the rest of the world.

And 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. And this is fundamental to what an exponential organization is in the biggest way.

So we saw this, 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 studios selling cassettes or CDs or DVTS. Then we digitized music, we dematerialized the cassette decks and everything. And all the major studios essentially disappear. And now you have two platforms, iTunes and Spotify is 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, it'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? Because the majority of the human, over 100,000 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 take an asset or a workforce, put a legal boundary around it and sell access to scarcity. And whether that was a hotel on a beach or a great design team or a chef in a restaurant, or.

A consulting business, I'm going to hire the best consultants. Right? And now when AI comes along, it's going to 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 models around abundance. And that's a completely different animal. And it's incredible, this transition and the need for, for new entrepreneurs to understand that and build businesses based on this new paradigm.

Going forward, we are heading towards a zero marginal society in some ways. In other words, marginal cost for things. And what happens is it uplifts the world. Right? We can head to a world in which we have access to all the food, water, energy, health care, education and even time. And people go, well, how do you make time more abundant? Well, we're making time more abundant by first of all, extending the human lifespan, which is a whole different conversation which we've had on this podcast. 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 and 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 exos we call it is Wikipedia, right? It kind of took the world's knowledge and with the community to help moderate in 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 and health champion. Part of my focus is on exercise, sleep, and diet. And when it comes to diet, I'm super careful on what I eat. But throughout the day, when I need energy, I'm looking for a snack. And one of my favorite options is macadamia nuts. And there are four reasons I want to share them with you. First, macadamia nuts are high in monounsaturated fats, which are the good fats for your heart. It lowers LDL and raises your good cholesterol. Second, they taste great and they're rich in fiber, which helps with digestion and gut health. Third, macadamia nuts contain antioxidants and flavonoids, which protect your cells from damage and inflammation. And finally, macadamia nuts have a low glycemic index, which means they don't spike your blood sugar. They truly are the king of nuts. I get mine from House of Macadamia, which offers the best macadamia nuts in the world. They're sourced sustainably from South Africa. They offer a huge range of delicious nutritious products, including roasted and dipped macadamia nuts, macadamia nut bars, macadamia oils, which are actually better than olive oil for cooking. If you want to try House of Macadamia products for yourself, you can get 20% off your first order by using the code PETER20 at checkout. Just go to houseofmacadamias.com peter20 and enter the code PETER20 at checkout. That's House of Macadamia's.com peter20 and then again, use the code PETER20 to get that 20% off. Trust 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 rise of Amazon web servers, but also the Internet and 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 going to show an image here. One second. 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. Gordon Moore creates the integrated circuit, the first one, two transistors together back in the late 50s. By 1965, he publishes a paper that says, 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. 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. And what 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 going to be able to read it, but it says the analytic engine. And then it goes on to IBM tabulators and 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 an exponential, but it's curving upwards, which tells me that the speed at which is increasing is itself increasing. It's not slowing down. On the right hand side, Steve Jurvetson added a few data points. This is around Google's new computational capability and Tesla's new computational capability that it's accelerating. This goes out to 2025. Moore's Law is not slowing down. One of the things that's important that you and I talk about is this idea of nested S curves that, you know, 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. You know, we had mechanical computers and then relay computers and then vacuum tube computers and transistors and integrated circuits and then, you know, whatever comes next, three.

Dimensional chips yeah, this, I think, was the real genius of Ray Kurzweil to identify this, right? Because every time you have some technology like vacuum tubes or transistors, 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 1s curve, something else always takes over the curve. And now we have, we're reaching the end of the 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. You remember our colleague Peter, Ralph Merkel, right? I had a chat with Ralph and I said, what do you think about Moore's Law? He goes, I just published a paper on thermodynamically reversible computation using molecular bonds. So you can do computation without heat. He goes, 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 I'm on stage talking to an audience, people go, when is this going to slow down? I say, it's not going to slow down. There 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.

Yeah, please.

We've realized that once you start an exponential doubling pattern that's information based, it doesn't stop doubling cognitively. We have the hardest time getting our heads around that piece of it. But Ray was the first to identify that this just keeps going. Drones are doubling every nine months in their capability. In neuroscience, the resolution at which we can image 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 accelerate at the same time.

Well, and I Would bet, pal. It's 100. All built on top of these other technologies. Right? You're building on top of computation. And 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.

And then you'll 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. When I'm talking to entrepreneurs out there saying how should I think about this, where should I be going? The advice that I give is, number one, you've got to be skating to where 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. I'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. Right. In the past, you build an organization and set it on a path to try and last forever. And the world is moving too fast today. You really need to reinvent yourself every year or two. And as the, as the metabolism increases, you have to do every six months because the stuff that you were built, you know, the story of Illumina I think is really relevant here. They were building high speed gene sequencing machines.

Illumina. Yes. Yeah.

And they were the world's leader at this. And it turns out the shelf life for a high speed gene, it was nine months. You only had nine months to sell this really expensive machine. The product development cycle was 28 months. So they had to have four product development cycles running in parallel to hit the nine month shelf life. Sales shelf life. Right. That's insane. That's just insane. If you think about manufacturing cycles and the expertise and how do you the 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. And I think the rise of ChatGPT just highlights it brings it all into sharp relief.

I love it. When 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 a thing in the past.

It just shows you how long you can I predicted that prompt engineering as an industry would last about five months and it turned out to last about five weeks. So there you go.

Yeah. In this world of exponentials, if you are not disrupting yourself, then someone else is. Bottom line.

We first identified this 10 years ago and you and I worked closely on the original book of EXO and we identified this model and 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. You won't grow 10x. And if you're not doing it, somebody else is. Right. 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.

Hey everybody, this is 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. I 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. These technologies are transforming what you as an entrepreneur can do. If this is the kind of muse you want to learn about and shape your neural nets with, go to dmandis.com and learn more. Now back to the episode. I think about the fact that there have been these moments in time that have been massive game changers. I call them interface moments. We talk about the 10 attributes that are internal, five internal, five external, that you identified that are important, and interfaces are one of them. I Remember one of the things that really stuck out to me, gotten to know Marc Andreessen after he started Andreessen Horowitz, when I went back and looked at Mosaic, his first company that he created as a platform. Mosaic was an interface to the Internet, right? Here is arpanet. That was available at mit, at Stanford, at Harvard, in the Defense Department and so forth. But it was arcane in terms of using it. And Mark creates Mosaic that allows all of a sudden anybody to use this incredible capacity. And on the first year There were like 10 websites, the next year there was like a million websites and then there was like 100 million websites. You see this rapid exponential growth. And that was an interface moment that made it made some complex technology available to everyone.

This is what I think you talk about when you say deceptive to disruptive, right? A technology goes from deceptive disruptive when it becomes usable. And that was the Mosaic moment. Steve Jobs made the smartphone usable and boom, it took off, right? Coinbase, Coinbase made it easy to buy Bitcoin and boom, that took off.

And ChatGPT made AI accessible and we saw zero to a million users in five days, zero to 100 million users in two months. And by the way, something's going to crush that record. I'm not sure what it's going to be, but it'll be a thing of the past soon enough.

It'll be the next startup that you and I launched somewhere.

I like that, I like that. So, you know, listen, this has been sort of an introductory conversation on exos.

I think it's important that it lays the groundwork for the rationale, right? Like everything is different. The way we frame it is that we have 20 Gutenberg moments hitting us at the same time. We had the printing press in the 15th century, completely changed the world and now we call that a Gutenberg moment because of the utter transformation it caused in society. Well, ChatGPT is a Gutenberg moment. Solar energy blockchain, AI. I mean we have this vast number of Gutenberg moments hitting us like a tidal wave. It's going to wash away all of these. I like your framing that you should touch on which is the asteroid.

Yeah, can I do that? Because nine year old space cadet in me can't help. So if you look back 65 million years ago, 66 million years ago, this massive 10 kilometer asteroid strikes the earth. And because of that impact, it changes the environment so rapidly that the slow lumbering dinosaurs are unable to adapt and they die because of this rapid change of the world. But the Furry little mammals, our ancestors proudly, as a furry mammal, survive and thrive. And so the asteroids striking the earth today are these exponential technologies. They're changing the business world so fast that if you're a slow, lumbering dinosaur, a large corporation unable to adapt, then you're dead. And it's the entrepreneurs. I mean, OpenAI, effectively with 130 people does something that Microsoft and Google had not done. Let's be fair about it. Google had been evolving with DeepMind, a lot of tech, but they didn't release it. OpenAI did the same example, which I love is I got to know Chad Hurley in the early days, the founder of YouTube. And I also knew Larry Page and Sergey. Larry was on my board at xprize. And I remember asking the question, you had Google Videos going as a company. A division of Google was Google Videos. And why did you spend $1.65 billion to buy YouTube 18 months after Chad started on his credit cards? And the fact of the matter was that they were aggressive, furry little mammals. You know, they didn't have an army of lawyers restricting what they would put on YouTube or how they did it. It was easy and it was frictionless. And they just grew so fast that Google had to buy them.

I think this is going to be the only MO for big companies going forward is to spot the furry mammals and buy them. And Facebook kind of pioneered that with Instagram and WhatsApp and whatever. That's going to start to happen more and more because big companies just can't do it. And that's a subject for a whole other discussion.

It sure is. Anyway, listen, I hope folks listening enjoyed this teaser taster on exponential organizations. The new book EXO2 is coming out. One of the things I love that you've done with your team, credit to you was make the book actually accessible through an AI. Can you talk about that a second?

Yeah. So Kent Langley and Michael Johnson and a couple of other folks on our team basically put together an AI ChatGPT style interface. They took multiple models together and merged it in. There's actually a full text chatbot AI interface to the book. So you can literally say, here's what my company does. How would I turn it into an exponential organization? And it literally queries the entire corpus of the book and comes back to you and goes, here's what you need to do. So this is like my entire community of 24,000 consultants is like, hey, wait, what? What did you just do? So it's, it's. But we have to do it. If we're not doing it, somebody else is going to do it. Right. And so I think that's going to be the paradigm, how people interface with this book, which is why we're so excited about the future.

Yeah. The. You know, like I say, the future is only faster than you think. It's the most exciting time ever to be alive.

Yeah.

All right, buddy. See you soon.

Great discussion.

Super fun. Take care.