Surviving Exponential Growth: Lessons from Network Solutions
At the beginning of 1995, there were only about 71,000 domain names in the entire world, and a grand total of about 16 million Internet users. This was the year that Science Applications International Corporation (SAIC), then based in San Diego, acquired Network Solutions—a small technology company in the northern Virginia suburbs of Washington, DC. By the end of 2000—the year we sold Network Solutions to VeriSign—the number of domain names had mushroomed to 27 million and the number of Internet users increased dramatically, to 361 million people around the world.
The five years between these two events serve as an exceptional case study in managing near-exponential growth.
Network Solutions administered the Internet domain name system, managing the sale of domain names by way of its exclusive cooperative agreement with the National Science Foundation. The growth of the Internet during these years was unprecedented, threatening at times to overwhelm Network Solutions. But a combination of dogged leadership throughout the organization, technical talent, and good-old-fashioned hard work by government and commercial types enabled the domain name system to transition from military and academic use to broad commercial scale.
We learned a number of lessons from our experience that are instructive to other companies anticipating high rates of growth in their respective industries—especially for companies with commercial solutions attracting a high level of public interest. We discussed our experience with Xconomy San Diego Editor Bruce Bigelow some time ago, but since then we’ve written a book that details many of those lessons.
Here are five of the most important.
First, you’ve got to be ready to exploit opportunities when they make their way to your front door. This requires designing and implementing a highly flexible and responsive company structure that is quickly scalable to accommodate rapid growth. Technological change is extremely rapid and hard to predict, and markets today are global, and moving quickly. The key to responding to this change is to be agile—to be able to direct people and resources at problems and opportunities quickly and in sufficient quantities, as they arise. The winners in the future will be those companies that are able to respond quickly and completely to the challenges in their path.
Second, building a solid financial base is a critical element in any company’s long-term success. It’s better to generate the cash you need for growth by becoming a profitable enterprise than it is to rely on intensive ongoing cash investment from venture capitalists or via initial public offerings. Keep your company in good financial health, and minimize your debt load. In that way, when a favorable opportunity comes your way, you’ll either be able to draw from your own reserve of cash to execute the deal, or easily obtain the financing you need to complete the transaction.
Third, making money out of nothing takes a unique combination of creativity, smarts, guts, and luck. This means hiring the very best people you can find—entrepreneurial “A” players who have a natural penchant for making things happen, instead of waiting for things to happen to them. The more opportunities your people pursue, the higher your chances of hitting a home run.
Fourth, if you end up on the bad side of certain politicians, they can make your life a living hell, and jeopardize all the good work you have done. The best way to deal with this reality is to constantly assess the political environment, to work hard to anticipate potential political problems and to be proactive with solutions that work for government and the public interest. You need to know how to work with government. You can’t predict every potential political problem you might run into, but if you have build strong relationships with your government representatives, agency executives, and key employees, you’ll be in a much better position to weather the storms.
Fifth, the most-effective executives and owners recognize when it’s time to sell out and move on to the next opportunity. When we acquired NSI in 1995, we paid $4.7 million. In 2000 we sold the company for $19.3 billion.
We then used our portion of the proceeds in part to fund the pursuit of new acquisitions and other business opportunities. You’ve got to keep a constant eye on the horizon and know when to stick with an opportunity, and when to sell out. While luck may sometimes pay a role, good data, observations, and persistence can take you far.