“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.”
Hyper-growth companies are often commonly referred to as startups, but since the word ‘startup’ means different things to different people, it would be more accurate to refer to them as Silicon Valley-style startups. Mass media has romanticized the idea of being a founder of a hyper-growth company, but in reality it is quite brutal. Here are some of the primary characteristics of a typical hyper-growth company:
- Growth! Growth!! Growth!!! – a large potential market coupled with fast growth is the primary factor that defines a hyper-growth company. For example, companies that participate in Y-Combinator are expected to have at least 5% growth PER WEEK 1
- Team size – hyper-growth companies have to move fast. There is too much work for just 1 person to get done and when too many people are running the show, things get bogged down. The ideal team size is 2-4 people. 2
- Mentors and Advisors – the co-founding team is responsible for vision and execution, but there are too many details and nuances that make a hyper-growth company into a success for the team to be knowledgeable about them all. Mentors and advisors serve as high-level repositories of knowledge and experience that the co-founding team can make use of in order to continue to quickly grow the company.
- Investment is needed – very few companies can scale fast enough without investment from Angels, VCs, and other similar sources of funding 3
- Corporate Structure – investors add financial capital, expertise, and connections to a company in exchange for equity in the form of shares. Therefore, companies seeking investment need a legal structure that allows for equity distribution.
- Accelerators – these are programs that companies apply to, and if accepted, will help to build the company at an astonishing rate.
- Exit events are a must – investors are looking for a return on their investment in less than 7 years which will only happen at an exit event such as selling the startup or having an IPO 4 5
- Success rates are low – Only 10% of hyper-growth companies are successful. The other 90% fail 6
Example of well-known hyper-growth companies:
- Air BnB
- Startup = Growth; Paul Graham, 2012 ↩
- The Types of Team Members Required for Startup Success; Reid Hoffman, YouTube, 2012 ↩
- 7 Factors For Deciding To Invest In A Startup — Or Not; Marianne Hudson, Forbes, 2014 ↩
- The Average Successful Startup Raises $41M, Exits at $242.9M; Mark Lennon, TechCrunch, 2013 ↩
- What Startups Need to Know About Exit Strategies; Tim Berry, Bplans ↩
- 90% Of Startups Fail: Here’s What You Need To Know About The 10%; Neil Patel, Forbes, 2015 ↩