Business Reading: Exponential Organizations and The Hard Thing About Hard Things

What’s true in literary fiction is also true for business books, I believe: if readers still say good things about something about a year after it came out, then it’s probably good, and not just the flavor of the month. This summer I read two 2014 titles I had had on my wish list for a while, and figured were ripe enough for picking.

2_d51b386d7c928e25_1280boxExponential Organizations, by Salim Ismail, Yuri van Geest and Michael S. Malone, is a well-researched outline of the key characteristics of a new generation of companies – the Ubers, the AirBnBs, the GitHubs of this world -, and of how they have come to disrupt markets, invent them them, or challenge longstanding business models in the space of just a few short years, by virtue of their exponential growth. These companies, which others often call Unicorns, have been extensively chronicled elsewhere, so the framework that the book lays out to identify them is useful, but not transformative; and the proposed scoring approach to rank Exponential Organizations (to be an Exponential Organization, you have to have a Massive Transformative Purpose plus at least 4 out of a list of 10 attributes that these tend to have in common) may appear a bit formulaic.

ExO AttributesIf one were to nitpick, such concepts as Holacracy – one of the more untraditional organizational philosophies adopted by some of the companies in the sample, covered in the book under the Autonomy attribute – seem to have had a bit of a rough time since the book was written. The authors, to be fair, don’t claim that any of these practices or characteristics would necessarily be needed for you to have an Exponential Organization; and it is perhaps inevitable that the riskiest management innovations are also the ones most at risk of being misunderstood, falling out of fashion, or simply failing. After all, in the words of my favorite business authors Pfeffer and Sutton, you should always “treat your organization as a prototype”.

The more valuable content in Exponential Organizations – at least for the vast majority of potential readers – comes in the second half, where the authors address what to do if you work in a traditional organization, one that thinks of itself as a well-fed turkey and may not realize that Thanksgiving is drawing near. A highlight of the work is in Chapter 8, which describes a few potential avenues to choose from, possibly in combination:

  1. Transform leadership; this includes training your Board of Directors to be aware of exponential technologies and the resulting disruption;
  2. Partner with, invest in, or acquire Exponential Organizations;
  3. Disrupt[X]: create an “edge Exponential Organization” at your boundaries, hire a “black ops” team to hack your business model for you, copy the Google[X] Lab, partner with accelerators, incubators and hackerspaces;
  4. Try “ExO Lite”, applying some of the ten attributes, even if in a diluted form, to your core business processes.

Chapter 10 is also worthwhile, as it tells you what’s in store for you if you are a CEO, CMO, CTO, CIO, CFO, Chief Legal Officer, Chief HR Officer and so on: you want your company to start pursuing this path, but you also need your colleagues to share your vision, and not think that you’ve lost your marbles.

Overall, this book pays homage to the classics in the field (Christensen, Collins), builds on non-traditional thinkers about human affairs (Taleb), adds to the mix a number of recent business concepts (Ries, Hoffman, Thiel) and earns its place on the shelf as a strong contender for a short list of must-read business books today. As a personal note, I am generally a fan of the Singularity University thinking that the book is grounded in, even if some of its more extreme fringes are somewhat crackpot (immortality? please), and technology isn’t yet keeping all of its promises.

After Exponential Organizations, I dove into my second business book for the summer: and I felt I had crashed down from the ethereal halls of academia into the brutal trenches of corporate warfare.

The Hard Thing about Hard ThingsThe book is The Hard Thing About Hard Things, by Ben Horowitz of Andreessen Horowitz fame. It is less a manual about how to build companies (that material is largely adapted from the author’s blog), and more a CEO memoir from Horowitz’s life before becoming a venture capitalist. As business books go, it is gutwrenching. It reminds you that business will be sometimes about things like letting people go when you should not have hired them (or even when you should have); demoting your friend, even if he is your cofounder; or moving ahead when you feel like hiding, throwing up and quitting. In fact, the ability to “focus and make the best move when there are no good moves” is, according to the author, the core skill of a successful CEO. Especially a wartime CEO – and there is no guarantee that a successful peacetime CEO will be able to turn into a wartime CEO when the company goes to war.

One particularly harrowing war story is, believe it or not, about the interpretation of accounting principles: revenue recognition is always a big deal for software companies, and a difference in interpretation arose – as Horowitz tells the story – while he was going through the due diligence process to sell Opsware to either BMC or HP in 2007. It turns out that his auditors Ernst & Young had adhered to one interpretation of a contractual clause about software upgrades, while BMC’s auditors – also Ernst & Young – stood for the opposite interpretation, and required either restating revenues (which would have killed the deal) or amending three contracts with large banks in the space of 24 hours. Both bidders were informed of the situation; amazingly, in less than 24 hours, Horowitz and his team pulled off the contract amendments with the clients. Still, BMC pulled back, and the deal was done with HP, where Horowitz then spent the following year as VP and General Manager of Business Technology Optimization for Software.

Even scarier, the following happened to Horowitz as he was leading Loudcloud towards is IPO (in March 2001 – a stressful time if there ever was one for tech startups). Three days into the roadshow, he got a call about his wife from his father-in-law, saying that she had had an allergic reaction to some medicine: “Felicia stopped breathing, but she is not going to die.” When he was able to speak with her on the phone, she told him to continue focusing on the IPO and not come home from the roadshow. The IPO was finally done, Felicia got better, and life went on: but the Loudcloud business was not yet out of the woods, and indeed – in the meantime, Sept. 11 had happened – it was sold to EDS a little over a year after IPOing.

The Hard Thing About Hard Things has a lot of strong and useful nuggets about hiring, training, and building a corporate culture. Even the most uplifting chapters, though, are tinged by some existential bleakness from the trenches that Horowitz has fought in. I recommend this book to everybody whose business is not doing well, and to everybody whose business is doing well, too, because, in the author’s words:

  • Being a good company doesn’t matter when things go well, but it can be the difference between life and death when things go wrong.
  • Things always go wrong.
  • Being a good company is itself an end.

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