November 7, 2014
“A startup is a company designed to grow fast. Being newly founded does not in itself make a company a startup. Nor is it necessary for a startup to work on technology, or take venture funding, or have some sort of “exit.” The only essential thing is growth. Everything else we associate with startups follows from growth.” – Paul Graham
According to Y Combinator cofounder and partner Paul Graham, the single most essential trait about being a startup is its capacity for rapid growth. That’s it: startup growth – that is the only thing that entitles a company to being labeled a “startup”. In April of this year, McKinsey & Company released its findings on software and online-services companies from the likes of Adobe, Salesforce.com, Google, and Facebook, which further conveyed the innate growth trait of startups and why it’s necessary for companies to grow fast or face complete death. The research was compiled by analyzing life cycles of approximately 3,000 software and online-services companies from around the world between 1980 and 2012 (essentially spanning the period of time between the nascency of the initial tech boom of the 1980s to today’s era of tech startups), as well as surveying more than 70 company executives.
In McKinsey’s research, there were three primary findings: 1) growth matters more than margins, 2) sustaining high growth is difficult, and 3) sustained growth is possibly only when certain factors are secured. For startups wanting to become billion-dollar companies, startup growth is the one thing on which they need to focus. Why? Because higher growth yields greater returns to shareholders. Additionally, high growth predicts long-term success. In the study, companies with growth rates greater than 60 percent upon reaching $100 million in revenues – which McKinsey refers to as “supergrowers” – were eight times more likely to reach $1 billion in revenues than those whose growth was less than 20 percent.
In a set of two videos recently released by McKinsey, those involved in the project summarize their findings. The first video goes into why growth is a greater factor than margins:
The second video from McKinsey goes into how companies can become supergrowers:
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