We love stories more than science. A good story causes us to see patterns in noise.
Maybe that’s the case with the idea that all manner startup phenomena conform to a sort of “10x Rule.”
But I think it’s actually true, or true enough that it’s an excellent rule of thumb that should be assumed until proven false. Here’s a slew of examples to guide you:
- Business models change based on pricing in roughly 10x increments
- Great people are more than 10x better than average.
- Winning products have at least one attribute that’s 10x better than all competitors (and it’s not necessarily design).
- VCs must invest in 10x winners, pushing every one of their portfolio companies to seek that outcome, even if it means increased risk and sub-optimal cash utilization.
- Companies do not naturally 10x their size or quality; that achievement requires intentional focus and investment.
- For multi-product companies, often one product generates more revenue than all the rest combined. (For Smart Bear and 37Signals, the largest was 10x larger than all the others combined!)
- SaaS returns in a market are a power law; winner can take 10x the profits of the next.
Examples: eBay ≥ 10 x Etsy; Google ≥ 10 x Bing; Facebook ≥ 10 x Twitter; Salesforce ≥ 10 x [rest of market]
- Your best marketing channel is often 10x the productivity of the next-best. True of content-marketing also.
- Scale is 10x harder than operating at small scale. (Because complexity is non-linear.)
- 1/10th of customers are likely (gross-margin) unprofitable. That doesn’t mean you should “fire” them. But it’s a calculation worth understanding, and a phenomenon worth measuring. And sometimes, changing your policy or product to reduce that set, is a quick and strategic way to generate profit.
- 1/10th of customers generate 10x more support calls than the rest. Some of that is OK, but some of that might be a signal about your product, or about your customers, or about those customers.
- $77.4 billion of Warren Buffett’s $77.7 billion net worth was accumulated after his 50th birthday. (HT @morganhousel)
- One or two decisions or principles will be 10x more important than all others combined.
Things aren’t always 10x, and some things have a 10x property for years but can evolve until there isn’t another 10x.
Still, it’s useful to assume there is a 10x truth, and spend your time seeking that truth, rather than worrying about and fiddling with one hundred variables, almost none of which will turn out to be important.