The T algorithm: the 8 variables for identifying a future horseman
In his latest book, The Four: The hidden DNA of Amazon, Apple, Facebook, and Google, the renowned American market analyst Scott Galloway talks about the T algorithm (T standing for trillion).
As it is a both fascinating and significant concept, I’d like to share it with you, so you can see how useful it can be in identifying the horsemen of tomorrow.
The algorithm was developed by Scott Galloway’s L2 market analysis company (acquired by Gartner in 2017) to identify those start-ups which are most likely to join the elite group of companies worth more than a trillion dollars: the famous unicorns. L2 uses it when advising businesses seeking to invest capital. The T algorithm was developed by analysing the GAFA companies - here referred to as the 4 horsemen - all of which are characterised by 8 variables.
1. Product differentiation
We are now in a market where the product is king and where, thanks to new technologies, consumers can shop around without needing to leave their homes. To merit their attention, a company has to really stand out - not only because of the product itself, but also by giving consideration to the entire value chain, from finding the product, to purchase and then delivery. It may even go back as far as the manufacture and elimination of the product to identify any issues and create new experiences involving technology.
Amazon is a very good example: very early on, they injected billions of dollars and a whole raft of technology into the final stage of the value chain (delivery) and became the world’s largest retailer. Furthermore, if we look at this famous example of differentiation through the prism of experience, we can see that it is getting rid of frustrations which adds the most value for consumers.
It has become much easier for them to make their purchases online and have them delivered than to go to their local shopping centre and then get stuck in traffic jams in the city centre. In the final analysis, the explosion of value is not necessarily related to the addition of new features or functions, but rather to the removal of friction which undermines the experience.
Friction exists everywhere, not just in retail: it is also a major factor in transport. It’s hardly surprising that the up-and-coming unicorns such as Uber and Lyft were developed around frictionless transport on demand, using geo-localisation to choose a car and electronic payment for ease of use.
2. Visionary capital
The 2nd factor in becoming a unicorn is the ability to attract cheap capital, which will enable a company to invest more than its competitors. This capital is obtained thanks to a simple and bold vision, driven by a charismatic manager who has the ability to sell it and capture the imagination of the markets. “Google’s vision is to organise the world’s information”.
It’s simple and ambitious, with a global reach to gain access to all markets, but, above all, it’s the reason why Google has more resources than any other media company to invest in its engineers, experiment more and thereby change the world. The market would view this start-up as an innovation leader and, therefore, provide it with more capital.
3. Global reach
The product or service should aim for international recognition so as to reach the widest possible market and avoid local recessions, and thus attract cheap capital. This international reach reassures investors and influences the market to such an extent that the first dollar earned by Uber outside the United States sent its value up by several billion dollars.
The 4 horsemen have all been hugely successful in going global: Apple has a presence everywhere, as does Google (except in China); in the case of Facebook, two thirds of users live outside the United States, and Amazon is growing faster In Europe than in its home country.
Sympathy is another type of capital which guarantees survival in an image-centred world, where public perception is a key factor in a company’s growth. A start-up with an exemplary image can not only attract more consumers, but can also pass under the radar of governments, supervisory bodies and other media.
With the exception of Apple, which is undoubtedly beyond categorisation (the luxury item everyone would like to own), we can see that the other 3 horsemen have all lost likeability over recent years following a number of incidents: Facebook and the Cambridge Analytica scandal, Amazon and its treatment of workers in its distribution centres, and Google and its use of personal data.
5. Vertical integration
Control of the distribution chain from purchase to after-sales service is one of the factors in the 4 horsemen’s success. Therefore, all brands have full control over the customer experience they offer through different points of sale, web platform and/or store. The aesthetic of Apple Stores reminds consumers that by choosing Apple, they have all understood.
This is the result of the aesthetic choice which the company made 10 years ago, having realised that the premises and the purchasing experience are as important as, if not more so, than the product itself. This vertical integration, which enables companies to control the customer experience, has become key for brands looking to expand.
6. Artificial intelligence
Behind Artificial Intelligence, we must include a business’s ability to access data, and, above all, use it. With the huge volume of data at their disposal, all companies (whether a unicorn or not) must be able to analyse it and learn lessons from it which they can then use to optimise their product or service.
This optimisation or behavioural marketing (current activities are used to predict future purchases) enables companies to match a product to immediate or future needs; this is the key to customer experience and personalisation. We have reached a level of understanding of human nature which we could never have imagined, and Google is the runaway leader in this area because of the astronomical amount of data it collects every day.
7. Career accelerant
The ability to attract and retain the best talents is one of the key issues we face today. The team with the best players will obtain more cheap capital and will be able to invest in innovation to enable it to stay ahead of its competitors and consequently attract new talents. That's the real challenge for the 4 horsemen. And what about employees? For them, it’s a wonderful springboard which allows them to assume responsibility at a very early stage and benefit from very enriching professional experiences.
This enables them to start to build a glowing reputation for themselves right from the moment they pass the entrance test. The competition is so fierce and the required standard so high (there’s no point in applying if you don't have significant experience), that candidates have to demonstrate ingenuity to get through the selection process.
This final variable stems from an observation: most of the premises belonging to companies which have accumulated billions of dollars are all within a bike ride of a university with a prestigious engineering faculty. Having access to a pool of young talents from the best engineering faculties is a considerable plus for expansion.
These links with leading higher education institutions are even more beneficial because they enable young graduates to develop their career fairly quickly, promote the university’s excellence and enhance the company’s skill level. Ultimately, everyone’s a winner.
So which companies will be the next technological unicorns?
In the light of the T algorithm, a few candidates emerge:
- Tesla, which is on the way to becoming the market leader in electric cars, has all the attributes of a horseman: an ambitious vision associated with a charismatic leader, a revolutionary product in an ageing industry, full control of the distribution chain and the integration of AI for self-driving capability.
- Alibaba, the e-commerce giant which has become the world’s largest retailer ahead of Amazon and Walmart thanks to its marketplace business model.
- Uber, which has created a new ‘intermediation’ business model dubbed ‘uberisation’ by the media, is also on its way to satisfying the factors of the algorithm, especially those relating to global reach and vertical integration.
Now it's over to you to spot the next big thing!
Published in Siècle Digital