Have you ever wondered why some promising companies peter out while others continue to prosper? Why you get a daily dose of your uncle’s crazy political views on Facebook and not Friendster, for example, or why YouTube is your source for Taylor Swift videos instead of early competitor Revver?
If so, a Pittsburgh-based, Cleveland-born venture capitalist and former entrepreneur has just released a new book that might answer those burning questions and give future entrepreneurs a blueprint so they can capture some of that startup magic themselves.
Sean Ammirati is a partner at the venture capital firm Birchmere Ventures and an adjunct faculty member at Carnegie Mellon University in Pittsburgh. He’s also the author of
the forthcoming book The Science of Growth: How Facebook Beat Friendster and How Nine Other Startups Left the Rest in the Dust.
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Ammirati formerly spent 12 years founding, building and selling businesses. His first two startups, both software companies, were purchased by Morgan Stanley and LinkedIn, respectively, and he sold his third venture, a news blog about Web technology called ReadWrite, to a private equity group in 2011.
The new book, his first, attempts to study the growth phase of several pairs of similar companies — one that skyrocketed, another that stalled — to tease out the overarching principles that made the successful ones work, then turn those principles into an organized framework for growth that future entrepreneurs can study.
The idea for the book came out of an after-class conversation in one of the courses that Ammirati teaches about “
lean entrepreneurship,” he says. A student approached him with a bit of feedback: The young entrepreneurs in the course felt confident about taking their ideas to the point of a real product that would satisfy a consumer demand, the student said, but they also wanted to know how they’d scale up their ideas.
“I thought about that question a lot and then started doing independent studies with students to look at it,” Ammirati says. “I basically brainstormed with students to think of companies that we could study to look at this question, and that led to these ‘best practices’ we figured out, which led to a whole course on the subject — which eventually turned into the book.”
Ammirati worked with about 30 students from the initial course to come up with successful startups and pair them in sets with lesser-remembered competitors. He and the students then performed third-party research on the companies by analyzing available literature and news reports, interviews with executives and publicly-available financial statements.
The students and Ammirati ended up with “matchups” that analyzed the early growth periods of Facebook versus Friendster, YouTube versus Revver, Hotmail versus Juno and even McDonald’s versus White Castle — a case study that forced the research team to delve into the early history of the two fast food foes back in the 1930s.
The final product of all the research behind
The Science of Growth is a model, outlined in detail in the book, that separates the factors behind successful growth into three key “stages”: a series of prerequisites (all of which are necessary; Ammirati likens them to “algebra to the rest of the model’s calculus”); a range of possible “catalyzing events” that ramp up awareness about the company; and finally a group of elements that need to stay in place for long-term growth to continue.
Some of the principles seem fairly intuitive, like the prerequisites that a company needs a founder with a strong core vision and an idea that solves a real problem. But another prerequisite that’s just as important, according to Ammirati, is that the company creates an excellent first interaction with each customer.
This particular strength, says Ammirati, is one of the ways that Facebook managed to oust Friendster — which
notoriously suffered from technical problems that led to slow website performance — from its spot as an early leading light in social media.
“As you think about scale, your mind needs to change to ‘I never get a second chance to make that first interaction,’” Ammirati says. “It’s really critical as you start to focus on scaling up.”
Perhaps the most intriguing part of the framework outlined in
The Science of Growth is Ammirati’s emphasis on the “catalyzing event” that takes a company and its product to that “next level” in terms of capturing public consciousness. These potential events, he says, include things like attaching to an existing popular platform to provide a service that users demand — as YouTube did for MySpace users who wanted to share video on their profiles — and understanding and taking advantage of new algorithms on search engines, social sites and app stores to maximize company visibility.
Ammirati even coined a term for a special type of catalyzing event that he calls a “double trigger event” — a moment when a product that’s already in place and has a market presence (the first trigger) captures the public’s imagination through happenings that are somewhat outside the company’s control. As an example, he points to the
SNL digital short “Lazy Sunday,” a widely-shared video that opened many people’s eyes to the video-sharing power of YouTube (and which ironically led NBC to
restrict the availability of its content on sites like YouTube a short time later).
“I can show you a YouTube traffic graph over time, and you can easily see where ‘Lazy Sunday’ happened,” he says. “The slope of the line completely changed at that point.”
While comedians using your platform to rap about Narnia and cupcakes might seem like a stroke of serendipity, Ammirati says the important point is that entrepreneurs who feel like their product is ready for the next step in terms of growth should always be looking for opportunities for these “tipping point” moments. He cites
Twitter’s emergence as a rising platform at the 2007 South By Southwest conference as another example — the social media site took SXSW by storm that year and tripled its traffic in a matter of days.
“If you’re trying to put this into practice, you can ask yourself, ‘Are there events going on, times of year, places, events where customers really have a problem I can solve?’” Ammirati says. “And I think that’s a very helpful exercise entrepreneurs can do.”
As for the long-term practices that sustain growth, Ammirati anticipated some of his conclusions — finding appropriate ways to incorporate outside funding is important, for example, as is adopting effective application and hiring processes that simulate real day-to-day work rather than rattle off interview questions.
But he says he also found that the most successful companies were rigorously — sometimes even fanatically — disciplined about the projects and possibilities they pursued, which surprised him.
“I would have expected that companies who scaled up would have more things going on,” Ammirati says, “but what we saw over and over again the companies that scaled up actually did a really good job staying focused on the most important things for growth. Even if other things were good or important, if they weren’t the most important, they just didn’t focus on them.”
PayPal co-founder
Peter Thiel provided one of the most extreme illustrations of this kind of focus, Ammirati says: He founded his management philosophy on making every employee at his company responsible for only one thing at a time and refused to evaluate employees’ performance in any area that didn’t pertain to their main responsibility.
“So imagine you calling up your editor,” Ammirati says, “and saying, ‘Hey, I want to talk to you about a bunch of really important things at Issue Media Group,’ and them saying, ‘No no no. Is this the number one thing you’re focused on right now? If not, I don’t want to talk to you about it.’ It’s just sort of this laser-focus approach.”
Despite the rigor that went into organizing the framework detailed in
The Science of Growth, Ammirati readily admits that there’s no “magic bullet” for growth and that his research on the topic was, by design, more about qualitative judgments than the quantitative crunching of hard data. The model was judged a success in that the winning companies examined in the book generally followed the framework and the also-rans less so.
“At the end of the day, I don’t think I can give one simple answer to (why Facebook beat Friendster),” he says. “And part of this gets back to an important point — it’s not like you can say, ‘Do this one thing and your startup will explode.’ What I think the takeaway is, though, is that growth is a conscious choice and these are best practices entrepreneurs can take into consideration.”
He also notes that “growth” isn’t some sort of plateau, a resting point from which a company founder can survey his or her conquered kingdom. To illustrate this point,
The Science of Growth closes with an analysis of Gmail and how the Google-designed mail service went on to humble Hotmail using many of the same principles that lifted Hotmail over Juno in the late 1990s and early 2000s.
“The point is that you don’t stop,” Ammirati says. “You need to continue to innovate. And I thought the Gmail versus Hotmail comparison was an interesting contrast there. Once I had that thought, I said, ‘OK, let’s use this map and do a bunch of research on Gmail.’ And it was great how you could sort of map Gmail’s progression to the framework (we developed). That was a real bit of validation.”
Ammirati also says he hopes
The Science of Growth will provide a blueprint that communities in his native Ohio can use to support companies beyond the startup stage. He says that while many urban centers now have a host of accelerators to fuel startup creation, it’s less common to see them provide tools that companies can use to continue scaling up and begin to make a real impact in the local community and beyond.
He points to innovative accelerators like Cincinnati’s own The Brandery — which partners with Procter & Gamble to fund high-potential startups as part of its
P&G Fellowship, among other initiatives — as an example of the type of program that can bring established enterprise companies and nimble startups together to encourage growth and create the long-term “anchor companies” he says communities need to thrive.
“I think those are the things that really shape a region,” Ammirati says. “Getting an accelerator going will create a lot of startups, and certainly you won’t have one scale up if you don’t have that startup created in the first place. But that’s not what changes the face of (a city). What will do that is anchor technology companies in those regions, and hopefully this book helps some entrepreneurs with some ideas on how to get there.”
Steven Thomas Kent is a freelance features writer for Issue Media Group, Soapbox's parent organization. He also contributes to the Los Angeles-based news site ATTN: and previously edited the Grand Rapids-based food quarterly magazine Roadbelly.
This story is part of a start up/scale up series in partnership with Southeast Michigan Startup and the New Economy Initiative.