Too fast? Too slow? Just right? According to entrepreneurial expert Todd Hixon, every startup desperately needs a “growth explosion” in the first few years. This is more than just solid growth—which he defines as 100 percent per year. Yes, that’s a great figure, but it’s not enough to make your startup one of the 10-20 percent who actually survive. It’s definitely not enough to ensure your startup is one of the very few that doesn’t just survive, but thrives. According to Hixon, if a startup doesn’t get to “significant scale” in the first few years (to the tune of around $10 million in revenue), it likely won’t be around in another few years.
Ideally, startups should aim to be at the $100 million mark in three to four years. Obviously, those kind of figures are astonishing, and not feasible for every type of startup. For example, a startup in Silicon Valley committed to “making it” might need those kinds of figures. A mom and pop bakery in the suburban Midwest can easily be considered successful with much smaller figures. However, Hixon is simply trying to give entrepreneurs enough buffer room in their budget and ambitious goals. “Without a growth explosion, 100 percent per year takes too long to get to enough scale for a good exit,” he explains.
The Numbers Game
Using the 100 percent per year growth rate, Hixon explains that after five years a startup will have “only” $3.2 million in revenue. That might sound like a lot, but for a business that means scarce resources and the likelihood of going through serious cash. It might not profitable, but it’s not going to be intriguing enough to catch the eye of big name investors. It’s a moderately “okay” startup, but will probably never be the next Amazon.
Hixon is also quick to point out that setting a bunch of short term goals can make time fly by—and that’s not a good thing when it’s your business. Sure, you have just $3.2 million in five years, but maybe you’re sure you can reach that $100 million mark in another five years. Unfortunately, at this point you’re already ten years in (and this doesn’t include all the years of prep work.) At a decade old, most businesses are no longer unique, the founders and employees are tired, the investors have lost faith, and you’re probably not sustaining that 100 percent per year. You’re lucky to get 50 percent per year, which significantly impacts your revenue.
A Quiet Exit
Many entrepreneurs are so disheartened at this point that they start checking out exit strategies. There may be options, but it’s not going to be that impressive. Luckily for you, newbie entrepreneur, ten years is still way down the line. There are many things you can do to encourage a growth explosion in your startup. Begin by nurturing early, major customers. The base you develop now sets the pace for business growth.
Ideally, you’ll have a product or service that reaches viral status. Seek out a heavy hitting channel partner who can promote volume at a fast pace. However, channel partners can be demanding and it’s a tricky relationship to manage. There are many ways to gain momentum, but ultimately you should focus on becoming a leader in your industry (no matter what it may be.) Don’t get frustrated if a growth explosion doesn’t happen, especially if you’re not in a highly competitive and lucrative industry. Just be aware of growth rates, exit strategies, and keep an eye out for early red flags whether it’s from the economy or from tired investors.