Which is easier: building a $1 million business, or a $10 million business?
Billionaires will tell you it’s the latter. Easy for them to say, but what’s compelling is research shows they might actually be right.
In September, three books hit the market in which billionaire businessmen advocated for what’s been called “10x Thinking.” One of them was my own book, in one chapter of which I document how Elon Musk’s outsize ambition helped him change the space industry, despite a lack of rocket expertise. A week later, billionaire investor Peter Thiel released Zero to One, in which he lauded the business strategy of aiming to create monopolies, writing, “Once you’re 10x better, you escape competition.” A week after that, Google Chairman Eric Schmidt published How Google Works and went on stage at New York City’s 92Y with Stephen Colbert, preaching, “Think 10x” to accelerate innovation. And this month, Walter Isaacson released The Innovators, in which he documents how outrageously big thinkers created computers and the Internet.
It seems that everyone’s praising the virtues of “thinking big” lately. But what may be troubling to mathematicians is what Google[x] director Astro Teller told me: “It’s easier to make something 10x bigger than 10 percent.”
It’s by definition counterintuitive, Teller says. But, he insists, with higher goals, “You can get to radically better solutions in honestly about the same amount of time.”
Studies indicate that the reason for this apparent paradox are both psychological and practical.
In 2002, psychologists Edwin Locke and Gary Latham consolidated 35 years of research on goal-setting and found that, all things being equal, the presence of lofty goals correlated strongly with improved performance—across industries and activities and regardless of if the goals were self-made. In a nutshell, aiming higher pushes us to do better. “High goals lead to greater effort than low goals,” the researchers write. “Tight deadlines lead to a more rapid work pace . . . [and lead to] the arousal, discovery, and/or use of task-relevant knowledge and strategies.”
In business, bigger goals spurred more clever solutions to problems and the rethinking of conventions, leading to breakthroughs.
“In order to get really big improvements you usually have to start over and break assumptions,” Teller said. 10x ambitions can force us to do what Musk calls “getting to first principles,” or rethink the (often slow) ways things are typically done.
Fascinatingly, however, the superior performance that comes from lofty ambition often emerges subconsciously. Case in point: in 2009, psychologists Stephen M. Garcia and Avishalom Tor found, through a series of experiments, that students that took competitive tests in rooms with a small number of classmates–say, 10–performed better than the same caliber of students who “competed” against large numbers of classmates–say 1,000. Subconsciously, the students that thought they had a better chance of being “the best” pushed themselves harder and repeatedly scored higher.
This applies to 10x thinking in business because there’s much more competition for “low-hanging fruit” and small business ideas–restaurants, selling crafts on Etsy, and so on–than there is for loftier goals like saving the world’s 20 million premature babies or putting rockets into space.
And it turns out that investors and top talent are much more willing to throw support to rocketeers than scarf-knitters.
“The biggest secret in venture capital is that the best investment in a successful fund equals or outperforms the entire rest of the fund combined,” Thiel writes in Zero to One. Therefore, he says, investors should “only invest in companies that have the potential to return the value of the entire fund.”
Knowing this, venture capitalists tend to favor 10-figure visionaries over more risk-averse entrepreneurs with solid plans for eight-figure businesses.
Furthermore, businesses that manage to create 10x better products tend to have an easier time making money. Amazon, for example, gained massive traction in the book-selling business in its early days by offering manyfold more books in its online store than a typical bookstore. Shoppers were several times more likely to find what they wanted on Amazon than at their local Borders, and Amazon took off.
When the iPhone launched in 2007, it was so much better than any cell phone on the market that Apple rapidly gobbled up market share as a foreign entrant to an industry dominated by established players.
“Generally speaking if you make things a little bit better, maybe you can make some money, but you better be great at marketing,” Teller told me. “If on the other hand you make something radically better–10 times better for a large number of people–the money is going to come to you.” This gets investors excited, which helps you fund your big idea and make it happen easier than manifesting a small idea on your own.
Additionally, argues Schmidt: “Global scale is available to just about everyone. But too many people are stuck in the old, limited mindset.” And, he writes, “It’s very hard to completely fail when you think big, since you can always salvage something of value from a project with big goals.”
The obvious question that 10x Theory begs is why don’t more people build billion-dollar companies? And similarly, why can’t we solve the really big problems facing the world–say, poverty or climate change?
Part of the reason is because easier is still not easy. But more important, quoting Oluvus founder Kosta Grammatis in Smartcuts, to make 10x improvement happen, “You need a critical mass of people who give a fuck.” Most of us don’t pitch big enough visions or tell the kinds of stories that get the critical masses excited enough to support us.
We simply don’t attempt really huge, audacious goals–or if we do, we’re afraid to tell the world about them in case we don’t succeed.
In other words, would-be innovators need to grow some courage. A friend of mine used to always say that in matters of love and dating, “Fate favors the bold.” His advice appears to be true in business, too.