You no doubt can name many technology companies that have or used to have billion dollar valuations. Companies such as Netscape, Facebook, Napster, Zynga, YouTube, PayPal, LinkedIn, Skype, Kazaa, Photobucket and Hotmail. What’s not so easy to name are the reasons why they were able to grow from basement or garage StartUps into these mammoths in such a short time. The 2009 book “Viral Loop” by New York Times/Fast Company/Wired writer Adam Penenberg attempts to demystify this. Viral Loop tells the backstory on what online innovations they hatched that gave them organic growth.

I received the book as a gift from Momenta Systems CEO Peter Fillmore a few months ago (thanks, Peter). So here are my thoughts about this volume on how these companies “grew themselves.”

Building a Huge Following

Taking the simple philosophy of Seth Godin: “ideas that spread, win” Viral Loop showcases the power of pass-it-on strategy. The film “The Social Network” by Aaron Sorkin gives a good illustration of how an application can use something that people want to share (in Facebook’s case, it was a person’s ego-inspired updates for friends to see) to help that application spread far and wide (since their friends had to sign up for Facebook prior to seeing that person’s updates).

He also cautions us about the dangers of scalability and growing too fast. He explains that company IT staff must constantly rebuilt their architecture as usage scales up. Failing to do this could result in another situation like MySpace and Hot or Not, which faced user exoduses when they couldn’t keep the servers up or gave their users too much strategic control.

Margin between Success & Failure is 1

Viral growth (really another way of saying compound growth) of course can be explained through the childhood riddle that asks: would you be better off if I gave you a million dollars today or a penny today, doubling it each day for the next 30 days. We all know the penny is the wiser choice because it has a high growth rate. Companies that ‘bake in’ a viral factor (peer-to-peer networking or stacking on top of others’ sites) can count on this same principal for gaining users. Penenberg calls this a viral coefficient and says it must be above 1 and preferably close to 2. A coefficient of 1 means each user tells, on average, 1 other person who ends up using it, for linear growth (1,2,3,4,5,6,7…) With coefficient = 2, growth is exponential (2, 4, 8, 16, 32, 64, 128…)

Why the imperative for viral growth these days? Penenberg feels it because that’s how we the market are treating all the companies and product offerings we interact with: “Because we are almost constantly communicating with friends, family, and colleagues over  a vast viral plain, our written self-expressions, whether they be forwarded emails, ideas, jokes, links or memes, spread virally.”

All in all, I think this book can flesh out people’s understanding of what companies should strive for when making user-centric products. This book gives a good grounding on the technology companies that have led the way here, without expecting the reader to be a Silicon Valley insider.

As a criticism, I fear that Penenberg has the journalist’s penchant for dwelling too much on the human side of these companies’ stories. Afterall, Penenberg is a journalism professor at New York University. So if you’re just looking to pull out the ideas viral growth, you’ll have to sift through parts of the book that have irrelevant details.

Another large part of discussing viral companies is monetizing users, which is largely missing in Penenberg’s book. I’m not very hard on him for this, because most of the companies he profiles haven’t cracked this nut either.

image credit: Hyperion books