Sunday, April 30, 2006

Can Microsft Take a Page From its Heritage to Create Exponential Growth?

Shares in Microsoft Corp. slid more than 11 percent Friday, their biggest drop in more than five years, after the software giant said earnings would be hurt by increased investments aimed at fending off rivals such as Google Inc.

The stock had its biggest single-day decline since November 2000, lopping about $32 billion off its $281 billion market capitalization and reducing the value of Chairman Bill Gates' stake by about $3 billion.

The move shocked Wall Street, which had hoped to benefit from the company's biggest product releases in years, with its Vista operating system and Office 2007 scheduled for January.

But is there a broader issue we can learn from this? What is the Microsoft business-building model to create Blueprint Company-like businesses?
We know the powerful lessons from today’s Blueprint Companies that in order to succeed:
- Shape a breakthrough value proposition early,
- The time from founding to the inflection point is about speed and about achieving a record high revenue growth rate,
- Don’t over invest in order to scale. Get to cash flow positive early and scale a positive cash flow model,
- Earn the right to get on the 4 or 6 year trajectory at the inflection point, and
- Leverage the 7 Essentials early.
When you read “Microsoft appears to be using that potential revenue to bankroll longer term strategies, prompting investors to question when it will deliver on growth expectations.

"This is still a company that is extremely profitable. What people are worried about is whether that ever flows through ... to the benefit of shareholders, or does the company spend that money," said Charles Di Bona, an analyst at Sanford C. Bernstein.
Microsoft said Thursday it would increase spending on its software services business. Chief Financial Officer Chris Liddell said the company was willing to make a trade-off between "the set of opportunities and the revenue growth potential we see."

In addition, Microsoft did not detail its spending plans. Liddell said the company would invest in rapidly growing areas of the software market, such as collaboration, business intelligence, performance computing and security.

I am a fan of Microsoft’s assent to $1B revenue. How could one not be? They are the #1 Blueprint Company still today – more valuable than even Google at $1B revenue. That being said, they could look at their history for guidelines to create a portfolio of Blueprint Companies as lines of businesses.
Here is what I found that would give you a perspective:

The uniquely common growth pattern to $1B revenue is exponential growth. The trend for these companies was they were cash flow positive early and scaled with exponential positive cash flow growth. The mean market cap at $1B revenue is $2.8B. Consumer sector businesses have the highest frequency while Technology has the highest value. Systems software is #1 at $1B revenue with a market value of $15B.

Therefore, based on the standalone company benchmarks, the market doesn't believe Microsoft:
- Will have a high probability of exponential growth,
- Will over invest thereby creating a negative cash flow business,
- Could have a low margin business,
- Will not achieve the 4/6 revenue trajectory to $1B (see chapter one), and
- Since only 5% of all US IPO companies since 1980 made it to $1B revenue (387 of 7454 companies) and only 29 of those made it to $10B revenue, the odds of Microsoft investing this amount up front to achieve a $10B business seems low given the benchmarks and their track record.

Bottom Line, the market is saying Microsoft is over investing and doesn't have a plan to get to a $1B on the way to $10B revenue on the 4-year trajectory. I would recommend they invest less and get to $1B faster followed by a plan to scale to $10B with a proportional investment from this point. Much more digestible for the market. Also use the Blueprint Essentials to communicate the plan.

What happens as a result, investors treat Microsoft as more of a traditional story than a fast-growing Web stock, valuing it at 18 times expected fiscal 2007 earnings, compared with 34 for Google Inc.

Can Microsoft develop a portfolio of exponential growth businesses with returns that lead the market?

While history indicates that the odds are against them, they have to forge the trail for the Google’s and Yahoo’s behind them.

Saturday, April 22, 2006

Book Availability

The "Blueprint to a Billion: 7 Essentials to Achieve Exponential Growth" was released in January 2006 (pub date). After 90 days, it went into a second printing!

The book is available on Amazon.com and at your local bookstore. It is also available for volume orders through 800CEOREAD.com or call Aaron at 1-800-CEO-READ. If it is not available, please ask you local store to order it for you.

With the release of the featured articles in Leader to Leader and Fortune Small Business as well as interviews in the NY Times and Red Herring in May, we could experience the need to order books at a number of locations.

On the journey to achieve exponential growth in book volume, the book was ranked at 550,000 this summer when I was writing it (I guess this is the bottom for Amazon's ranking que), achieved 43,000 as it was being printed. As of this week, it continues to climb and was ranked on Amazon.com at 2,700.

We will find out if another reprinting will be required in a shorter time than the first one! Stay tuned...it is an exponential growth journey.

At one of my talks, I was asked if my goal was a million books. With a title like Blueprint to a Billion, what can I say?

Enjoy the book!

David
Exponential Growth

This blog is dedicated to the discussion and journey to identify the success pattern of America's highest growth companies. Where do you find them? Of the 7,454 U.S. Companies that IPO's since 1980 only 5% achieved $1B revenue. Only 5% in constrast to the 25% that went out of business.

Was there a common growth pattern? They exhibited a common revenue growth characteristic -- exponential growth. Exponential growth is consistent compounding growth. It is unique to these companies.

Is this new? With all of the research on growth one might think no. I didn't-- Until I Googled "Exponential Growth". Try it. I found no business reference!!! Yes, you will find, as of April 2006 the following:

Exponential growth - Wikipedia, the free encyclopedia
Such growth is said to follow an exponential law (but see also Malthusian ... The phrase exponential growth is often used in nontechnical contexts to mean ...en.wikipedia.org/wiki/Exponential_growth - 33k - Cached - Similar pages
Exponential growth
Exponential growth. Take a sheet of paper of the ordinary variety - letter ... This table should convince anyone about the rapidity of exponential growth. ...raju.varghese.org/articles/powers2.html - 15k - Cached - Similar pages
Exponential Growth and Decay
INTRODUCTION; Equations · EXPONENTIAL GROWTH · EXPONENTIAL DECAY · Factor · Percentage Changes; PROBLEM SOLVING; General Problems · Study Guide Problems ...www.physics.uoguelph.ca/tutorials/exp/Q.exp.html - 2k - Cached - Similar pages
Introduction to Exponential Growth
EXPONENTIAL GROWTH. Be sure you are acquainted with the two forms of the equations for exponential growth and decay. Recall that they are: ...www.physics.uoguelph.ca/tutorials/exp/growth.html - 4k - Cached - Similar pages[ More results from www.physics.uoguelph.ca ]
Basics of Exponential Growth
Exponential growth drives resource usage for a very simple reason: ... Clearly, Exponential growth, in general, is not understood by the lay public. ...zebu.uoregon.edu/1999/es202/l3.html - 7k - Cached - Similar pages
Exponential Growth
Exponential growth occurs when some quantity regularly increases by a fixed percentage. Examples of exponential growth include ...www.krellinst.org/UCES/Demo/ ScientificComputing/uces-4/uces-4/uces-4.html - 5k - Cached - Similar pages
Exponential Growth -- From MathWorld
Exponential growth is common in physical processes such as population growth in ... Exponential growth also occurs as the limit of discrete processes such a ...mathworld.wolfram.com/ExponentialGrowth.html - 19k - Cached - Similar pages
Exponential Growth
Click the following button to run an applet you can use to experiment with exponential growth. If you are accessing this lesson over a slower network ...www.otherwise.com/population/exponent.html - 9k - Cached - Similar pages

This unique growth pattern of America's highest growth companies is not a pattern that has been quantified.

Challenge yourself to search for, what I have been searching for, the common success pattern of America's highest growth companies. Search for the success pattern of exponential growth companies. I think you will find what I found - not alot.

When I started my research, I believed that identifying the success pattern would be a 6 month project. Three years later, I finised my research and published the "Blueprint to a Billion". This new book is unique in that it is the only book that articulates the exponential growth pattern of America's highest growth companies. I am pleased to contribute to what appears to be a huge white space in our learning from the masters of growth -- the 387 Blueprint Companies who achieved $1B revenue since 1980.

David