Startup Growth is not optional7 min read

Aug 19, 2018

Making the case for Growth is simple: Every company needs to grow, and nowadays every company is a Tech company.

 

7 out of the 10 biggest public companies by market cap are tech companies and every industry is slowly “technologized” [1]. In 2018, “Software has eaten the world” [2]. The result is fierce competition, high uncertainty, and rapid innovation and disruption.

 

Growth is not optional – it’s mandatory.

 

However, most companies don’t have Growth teams. That’s why I want to raise awareness for the topic in this article and lay out arguments for Growth.

 

 

Fierce Competition

A startup – by definition – targets a fat, juicy market, which means higher competition, which means a high chance of failure. Six out of 10 startups don’t make it, most of the time because they don’t reach Product/Market Fit, run out of cash or don’t put the right team together [4]. An antidote can be following Growth principles, such as validating Product/Market Fit, keeping sound unit economics, and scaling scrappy [5].

 

It’s easier than ever to start a startup. Cloud storage is cheap, developers can be hired from all over the world, and new code frameworks and infrastructure solutions allow rapid development. The biggest limit to starting a successful startup is ideas. That has led to a global economy, in which every taste finds a place. Businesses like Stratechery or essays like Kevin Kelly’s “1000 true fans“ wouldn’t have been possible before [6].

 

The biggest limit to starting a successful startup is ideas. Click To Tweet

 

The rise of the cloud tore the wall between marketing and product down. Nowadays, the time between finding a product and using it can be as low as 5 seconds. Back in the days, you had to install software from a CD. Maybe, you were able to download and then install it. But now, applications run in the cloud and we rent them for a monthly fee. Broadband Internet access and the adoption of mobile phones drove this trend further. With that wall gone, why do we still have a huge divide between product and marketing departments in most companies?

 

When a startup succeeds, it usually builds a strong and defensible business. Moats and network effects are hard to get, but once you have them, they can carry exponential growth over long times. That means whoever gets network effects first, wins. For marketplaces, we say “first to liquidity”. Kicking a successful startup off the throne is not impossible but close to it. Look at Facebook, Google, Apple, Amazon, and Co. Moats and network effects are the result of Growth principles.

 

I would argue a Growth mindset is the best way for startups to beat competition.

 

High Uncertainty

A startup – by definition – marches through uncharted territory. It needs to innovate but that comes with uncertainty because nobody has done it before. Growth is a great tool against uncertainty because it provides a set of rules and methods to guide companies through this journey.

 

Growth is based on the scientific method; there’s is not much room for opinions. At the core stands experimentation and what is it other than iteration towards the optimum? Uncertainty always lies in the future; it comes from stagnation. Growth is the way to move forward, iterate, and adjust.

 

Uncertainty also sits on the other side of specificity. When something is unclear, look at the smallest parts and it becomes obvious. Growth is often built on that simple principle: what are the smallest components of a process that can be optimized? In that sense, it has a lot in common with engineering. Both are based on optimizing the smallest parts of complex systems.

 

When something is unclear, look at the smallest parts. Click To Tweet

 

I would argue a Growth mindset is the best way for startups to beat uncertainty.

 

Rapid innovation and disruption

A startup – by definition – disrupts a market. You cannot innovate without creative destruction. In the last 20 years, most industries were “technologized” and many have been disrupted. Much of that was driven by a few key innovations that served as platforms for the most valuable companies we have today.

 

Broadband Internet revolutionized search, social interaction, communication, retail, news, travel, music, and TV. Mobile phones revolutionized mobility, dating, communication (again), games, music, and photography. AI could disrupt law, customer service, agriculture, cars, recruiting, and much more. What AR/VR and blockchain will bring remains to be seen but the potential is huge.

 

companies that built on the internet as a platform

 

Every new platform bears new companies, which sometimes becomes platforms themselves. It’s an eco-system with an own dynamic.

 

companies that built on other companies as platforms

 

Whether you build a company on a new technology or an existing platform, there isn’t much space on the podium. In most industries, we see a strong first place with a few second places that struggle. Which search engine is a threat to Google? Which social network is a threat to Facebook? Which retailer is a threat to Amazon? Of course, that doesn’t mean these companies will reign forever. Once in history, Yahoo was the biggest search engine, Myspace was the biggest social network, and Walmart was the biggest retailer.

 

innovation s-curves 

 

 

Innovation develops in S-curves. When you’re at the bottom of the “S”, you need to grow aggressively to capture the market and fend off competitors. UBER, Waze, and Instagram came out 2-3 years after the first iPhone launched in 2007, for example.

 

When you’re at the top of the S-curve, you need to find new ways to grow. That’s why Mark Zuckerberg declared Facebook a “Mobile-First company” in 2012, something Google did a couple of years earlier. Then, in 2015, Sundar Pichai declared Google an “AI-first company” [6]. Facebook and Google understood the importance of being present on the next big platform.

 

You get the point: economic eco-systems change (rapidly) and whether you’re on the side of winners or losers, Growth is key. Growth is the engine that allows you to pivot and accelerate through its iterate nature and constant user feedback.

 

I would argue a Growth mindset is the best way for startups to innovate.

 

Growth is not optional

Building a skyscraper is different from building a family house. It takes a different team, approach, thinks to consider, and money. Startups are the same; they’re designed to grow fast, at scale (hat tip to Paul Graham) [7]. But too many startups try to build skyscrapers with a family-house mentality.

 

Growth is as controversial now as SEO was 10 years ago, but it shouldn’t be. It’s not a new name for something old. Growth is the natural emergence of marketing and product.

 

It’s not even new; Growth exists for 10-15 years. Chamath Palihapitiya’s team at Facebook was dedicated to Growth and before that, Sean Ellis put together cross-functional Growth teams at Dropbox & Co.

 

Yet, most startups don’t have Growth teams. That’s a costly mistake.

 

Not having a Growth team is a costly mistake for startups. Click To Tweet

 

References

1.     Wikipedia: List of public corporations by market capitalization

2.     Reference to Mark Andreessen’s essay: “Why software is eating the world”

3.     Fortune: “Conventional Wisdom Says 90% of Startups Fail. Data Says Otherwise.”

4.     CB Insights: “The Top 20 Reasons Startups Fail”

5.     Kevin Kelly: 1000 true fans

6.     Sundar Pichai declaring Google an “AI first company” in ”A personal Google, just for you”

7.     Paul Graham: “Startup = Growth”