Startups have a tough time understanding growth.Maybe it’s the whirlwind of numbers being thrown around to impress investors or even just comparing ourselves to the unicorns of the world, but when it comes to predicting and analyzing growth, a lot of startups are absolutely clueless as to if they’re doing well or not.
While the name of the game usually boils down to dollars and cents, the industry has been shifting more towards concrete evidence of expansion. Quite simply, a lot of investors have had enough of the “let’s acquire a bunch of users and hope to sell advertising,” which overall is a good thing for everyone. Startups need to make money to justify their evaluations, or otherwise, it’s all just fugazi.
Look, I know starting out it can be difficult to establish a growth model that’s accurate to your honest trajectory, but doing so will give a much more clear vision of success. After all, if that’s what you’re after, then it’s time to start planning accordingly. Here’s how:
Where Growth Is Happening
You first have to find out how you compare to the current trends and insights of the rest of your industry. As noted by CB Insights, the top categories for VC funding include insurance, AI, and health.
These industries have been noted to have the highest growth trajectory, as the report also cites that investment into advertising-based platforms (I.E., The Facebook and Twitters of the world) are on a sharp decline. With numerous amounts of digital businesses on the rise, it’s going to be interesting to see exactly where you fit.
To establish a growth model comparable to the rest of your industry, look at where your traction currently stands, as well as if your revenue stream is providing you with enough runway to become self-sustaining eventually. A big reason that venture capitalists are shying away from the companies above is that there’s no guarantee of a return in hoping to build a user-base (quite simply, people only have a limited appetite for certain social channels).
Your growth trajectory should have a definitive return on the dollars spent on acquiring a customer. While a lot of this might sound obvious, a lot of founders can get caught up in the numbers game of “If we do X then Y will happen later down the road.”
Sure, it’s great to be optimistic, but hope doesn’t always keep the lights on. It’s imperative you have a concrete, applicable formula for what metrics you want to expand on, as well as how you’re going to get there.
How to Find Your Niche
After you’ve established the metrics of which you’re going to gauge your growth, it’s time to start looking at how your marketing efforts will go. As an entrepreneur, you’re going to have some degree of bias/tunnel vision in saying, “I know my market because I know my industry.”
But that’s not always the case. According to a study conducted by Statistic Brain, lack of market knowledge was the seventh-most common reason a leader failed. Take the time to genuinely do your market research, as it’s going to be the most significant cursor of growth.
I should mention that there are no universal standards as to how a company should grow. As noted by TechCrunch, accelerators like Y-Combinator, for example, find companies that are at a 5-7 percent growth rate is great, with ten percent being excellent. However, that’s for early-stage levels. Annual growth is an entirely different story.
The article also analyzed over 70 publicly-traded tech firms, which found that 20 percent annual growth has kept them sustainable at a healthy level. To calculate this percentage for your business, look at what stage of funding you are at, where your current market is at (as well as where it’s headed), and if there are any potential roadblocks regarding legislation or competitors. This will give you a better feel for your three to five-year plan.
What You Should Think About For Exit
In the tech world, there are virtually two options that are considered a success: either be acquired by the likes of a Google or Facebook or go after being a publicly traded company. The latter is a much more challenging route, as you have approximately a 1.28 percent chance of becoming the elusive “unicorn” (a publicly traded company with an evaluation over $1 billion). However, how your firm will grow is going to heavily dictate the route you eventually take.
Focus on the aspects of where you’ve been, how you currently stand, and the predictability of your future. It’s okay if you’re still developing or going for an earlier exit than expected.
There’s no universal rule for what should happen, which begs the question: What does a successful ending look like for you?