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”.

  • hi Brad,

    Great post.

    I remembered me the E-myth and Ultimate Sales Machine approach of how to create processes to build a big company. Also, I wacthed a presentation from Doug Tatum about "No mans land", on how to become a big company.

    Do you have any reading suggestions on how to increase your size?

    Tks a lot, Miguel, from Brazil

  • I think this is a great post. I would like to add that it illustrates how important it is to pick the correct metric to add a zero to. For instance if you decide that you want to grow your customer base by a zero however you really should have been focused on time site or revenue per customer you could lose valuable time and money going after the wrong metric.

  • Here is a version of what I did the last time I heard this question from a Board (and saved a company, now big).

    At time t >= 0 we're selling y(t) units of stuff per day. The present is t = 0, and we are selling y(0). We have estimated our eventual 'market potential' as b. So, we want y(t) to grow up to b.

    From 'viral', happy customers from stuff y(t) talk to the potential customers (b – y(t)). So, our growth rate, (d/dt) y(t) = y'(t), is proportional to both the amount of talking up y(t) and the potential customers listening (b – y(t)). So, for some constant k, y'(t) = k y(t) (b – y(t)). So, y(t) = y(0) b exp(bkt) / ( y(0) (exp(bkt) – 1) + b).

    So, pick a reasonable k, plot some curves, and find t so that y(t) = 10y(0) to answer the question.

    Then, do more such things. Then, get back to writing software, listening to customers!

  • Great post Brad.

    Adding another zero often calls for long term planning, which I'm a big fan of. In today's economy, far too many companies are neglecting the long term because of their fear for the short term.

  • Hey Brad,

    Could not agree more with this. You are essentially asking people to shatter preconceived notions of growth or whatever metric is might be. Sometimes people form mental obstacles that are more like mirages.

    How to shatter the preconcieved notions is important as well. I have another wise mentor who believes in the "50 Ideas Approach." It is simply, for whatever problem you are trying to solve, brainstorm at least 50 ideas of how to solve it. The kicker is if you cannot brainstorm 50 ideas, then you don't know your business well enough. Of course each idea will need the appropriate analysis (ie SWOT, etc), but that is secondary.

    Good post.

    • Oooh – I love the 50 ideas thing.  Great idea.

  • Love this line of thinking as it is especially relevant to what I'm working on now. We're taking in revenue from one subset of our user-base, but working to integrate a subset that is 10x our core users and is a wealthier demographic to boot. Actually, saying that makes me rethink my use of the word "subset."

  • Chart

    Living in a major earthquake zone orders of magnitude are much more real (and scary) however even in an earthquake zone business people rarely understand what an OoM really means. Improvements in networking over the years is one of the best examples of this 10M => 100M => 1000M => 10G however there is still a huge gap in getting people to realize this. Your explanation of "add another zero" brings it home in a much better way that everyone can quickly grasp. Excellent post.

  • RichardForster

    awesome thought….

  • Hey Brad,
    I think this is great advice for "aiming high" but I hear so often "pick metrics you can hit" and then "hit them". Do you worry about pushing too hard on thinking big(ger) and not enough on the tactics of the strategy? I understand the premise of cascading leverage but I think company lifecycle is a critical piece here. Ship early and ship often might (and i do mean might) run counter to ship later, ship bigger. Maybe focusing less on magnitude and more on milestones moves the ball forward a bit faster. Probably need a dose of both I'd think.

    • Both are important. I often feel that too much time is spent on the shorter term / “obvious goals” in a lot of young companies.  There’s a ton of value in thinking big on a regular basis.

  • I also think this can be a wake up call for company mgmt too in the sense that they will have to ask themselves:

    "Are there 10x as many customers out there for us to get?"

    "Will our systems be able to handle 10x volume or do we need major upgrades?"

    "Will we be over 100% of the current market for our product if we grow revenue 10x?"

    "No wonder my investors are not so happy with my modest 20% or 40% growth rates!"

    🙂

  • this is something i have been very interested in lately. thanks.

  • thanjks for share

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