Paul Graham has penned a longish and excellent essay in which he postulates that growth is the single defining characteristic of startups and the thing that all entrepreneurs must focus on. Paul is slowly but surely building a body of writing on startups that is as good as anything that has ever been written on the topic. And this essay on growth is one of the gems. This is another gem. There are quite a few of them.
I don't always agree with Paul and I see the world a bit differently than he does. But on the topic of growth, I could not agree more. Once we determine that a company fits into our investment thesis, we then turn to the team and traction to figure out if it's something we want to invest in. Traction is another way of saying growth.
One thing that Paul did not touch on is the difference between organic and sustainable growth and temporary stimulated growth. Things like gaming Facebook's open graph can temporarily stimulate growth that is not sustainable long term. Investors can be faked out by things like that. Gaming Google's search algorithms is another way that has been done in the past. When we look at growth, we look for authentic, organic, and sustainable growth that is not overly dependent on a single source, particularly a source the startup doesn't control. That takes some experience to detect. We've messed up there as have most investors.
Sustainable and organic growth that can continue for five or ten years unabated will produce extraordinary returns. I look back at Etsy when we invested in it in the spring of 2006, about a year after they had launched. The company had just crossed $200,000 a month of gross merchandise value (GMV), up from $1000 of GMV in the month they launched in June 2005. They had grown 200x in less than a year after their launch. I am not going to reveal Etsy's current financials but it is safe to say that they have grown more than 200x again since our initial investment. And at the rate they are growing, they could grow another 10x in the next five years. Those are some big numbers and that is how investor generate spectacular returns investing startups.
And that is how entrepreneurs and the founding team and the management team can generate significant value for themselves as well. When thinking about startups, growth is good.
Hi Fred, what would you consider to be the key thing(s) for the founding team to focus on to achieve sustainable organic growth?Paul Graham seems to encourage a focus on weekly growth for startups but that seems to encourage growth at any cost even if its temporary growth. He says that the growth target is the only thing that matters to the team.For sustainable organic growth, is this also achieved by focusing on an immediate growth target or is there a more long term focus and goal that focused on?
i like to focus on returning users and engagement early onthat is a sign that your growth is organic and authentic
Do you encourage your portfolio companies to have obsessive focus on growth? Or do you think growth is more of a result of the team focusing on a bigger set of priorities for the company?
i like them to be obsessive about growth, retention, and engagement
What is your reaction when the % returning users and engagement numbers are really good, but haven’t yet reached a large enough sample.
it’s either a niche product or the marketing isn’t effective
should I assume that returning users is a moving average number.Also this is a math question I have been fighting with friends aboutshould the delta of returning users be the following -(p2r-p1r)/(p2-p1) where p is period and r is returning users? or should it look something like the following:( (p2r/p2t) – (p1r/p1t) )/(p2-p1) where p is period, r is returning users and t is total users for that period?(the reason: totals fluctuate)
i don’t have a point of view on that question
well if you know someone who does – I spent three hours trying to figure out what that should be, and then realized that I should have taken multivariate calc.That delta describes the angle of growth for stickiness, and in certain ways is a better measurement than viral quotient. But I need to know what it should look like. 🙁
what’s an “angle” of growth? is that a qualitative label or quantitative measure? same question for “viral quotient”.
Quantitative for angle of growth – technically speaking it is the first derivative of growth. if you mapped out all the points for growth you would see a different graph than the growth chart Since a derivative is a tangent line to a curve (of say growth) said line will have a slope with respect to the x axix. a slope of 0 is bad, so is one less than 0. (see this article = http://en.wikipedia.org/wik… )Once you have that first derivative, you could take the second derivative and see what the rate of acceleration is for growth. Could be very helpful 🙂
and viral quotient is http://www.forentrepreneurs…
first comment. (gaming avc.com to fake traction).
Then i guess part of traction can occasionally be showing up very early, even if you have nothing clever to say. But you better up your game shortly and consistently thereafter!
the early bird gets the worm
…but the second mouse gets the cheese.
The trap catches the first mouse.
Ah yeah, right.Subject: [avc] Re: Growth
um, a good cat catches ALL the mice.
Funny.I’d be happy to be mouse three. There’s always a cat lurking somewhere.
If there’s a cat, there’s probably no need for the trap 🙂
I was thinking to myself as I was reading this.. it should be ‘a longish’ and not ‘an longish’.2 thoughts came at once – Everytime I have someone point out a mistake when I blog, I always wonder if the person would do the same if they blogged everyday (haha)And then I remembered this HILARIOUS strip from Doghouse DIaries ( http://thedoghousediaries.c… as I have the annoying habit of correcting people’s grammarNot related to startups or PG.. but there you go.. hope everyone’s having a good weekend. 🙂
thanks for the typo Rohan. i fixed it.
No problem. Just that in your blog’s case, 100,000 will probably have the same thought. So, thought I’d flag..
of course. that was a gift. every time someone does that i thank them, at least in my mind. i hope i do it in a comment reply as well.
“as I have the annoying habit of correcting people’s grammar”It’s good to be detail oriented. And to be annoying is to be an entrepreneur. Otherwise someone should work for a corporation where they can practice the art of giving a shit what other people think and letting it guide their behavior and end up with their head in the sand lest they open their mouth and offend someone.My wife was complaining the other day about a newly minted doctor peer that was all up in arms about the small details of something. My take was that he would end up being a good doctor once he got out of the “wet behind the ears phase” that he was in. His “brain” worked and he thought and saw things that others appeared not to care about. To me some of the most successful people (by any measure) are people who care about things that others don’t even see or don’t think are important.
🙂 Happy weekend LE
the essay was too long. brevity is a virtue, people!here’s a shorter version: startups are about growth. startups should focus on growth and then everything else will follow. the end.anyway. i’d like to beef with the glorification of growth a bit. it’s time to think about growth differently, in my opinion. the days of big market cap internet companies are coming to an end. it’s all about niche and depth of wallet. i.e. $100 from 10 customers instead of $10 from 100 customers. i believe this will require a completely different method of investing and entrepreneurship and will break silicon valley off the IPO addiction.
etsy is not ebay and yet they continue to grow and grow
sure, perhaps they are an exception. i think big market cap companies will increasingly be susceptible to niche attacks. i.e. etsy for [insert demographic]
i reblogged this quote from paul’s essay when i read it first thing this morning http://fredwilson.vc/post/3… so i agree about brevity and the money quote
Fred originally introed me to Paul’s essays years ago in a blog post. He named it one of the best VC blogs and noted it wasn’t really a blog and that PG was not really a VC. In his praise, he also used the term “long-winded” and I’m reminded of that each time. It’s a different style from this blog (and he does call them “essays”.)PaulG also has a time lapse simulated typing session (posted on his site maybe?) where you can watch him compose, edit and add footnotes to an essay. I’m sure that sounds drab but it was sort of interesting to “shadow him” while you watch it.
in my opinion nothing should be longer than it needs to be. i had to drop out of that essay half way through as i realized it wasn’t efficient enough. i have a similar policy with movies: if i’m not entertained within 30 minutes, i cut my losses and walk out of the theater/turn off the computer.
startup idea: modern day CLIFF NOTES, for everything.
could be built off twitter! (until they cut it off and develop their own)
if it is built inside of twitter then it can’t be cut off
they can always delete user accounts. but the more you’re inside twitter, the more you’re giving the value to twitter rather than yourself.
yup. that’s facebook’s game and twitter is on to it.
There are various companies out there that provide summaries of business books. One advertises in the WSJ but I can’t remember the name (so it must not have a memorable name because I’ve seen the ad dozens of times).A summary though is even one further step removed from actually doing.At least a long book, or essay, assuming you have the time to read, allows you to gain more about the reasoning behind a decision, thought or idea.I’ve back off somewhat on reading books from what I have done in the past. While part of this is because of time (so much to read online along with a variety of counterpoints and opinions which is great) I find that they tend to be obviously biased to the author’s one point of view, providing only backup for their opinions and can be particularly dangerous if you know very little about the subject matter.A summary, or even bullet points are taken as rules and you don’t really know whether the rule applies to your particular situation or not. (That comes with experience of course but that takes years of course so there are cases where you need shortcuts.)
That’s why he calls them Essays 🙂
essays may be justification for being longer, although i don’t think it is justification for being *unnecessarily* longer. i’m more concerned with efficiency than with length; i read full-length books all the time. of course that’s just my opinion, if others are less miserly with their time or found the essay to be sufficiently efficient perhaps they will feel comfortable with it.
I hear you. Have you seen the comments about it on HN http://news.ycombinator.com…
and i thought i had a short attention span..
Readers digest figured out the optimum length of articles based on time of toilet function.
which explains this http://fredwilson.vc/post/3…
thats awful 🙂
Paul usually writes one post per month so I forgive him if they are a bit long sometimes. They are high quality and do generate a lot of discussion.
It’s hard work writing something short.“I’m sorry I wrote you such a long letter; I didn’t have time to write a short one.”― Blaise Pascal
I love Paul Graham’s essays. Perfect length for Saturday morning.
He also has beautiful writing
I’d prefer the second choice from the first. if you lose one of your ten customers, you lose a lot more money than if you lose one of your 100 customers.(and I suggest people start reading walden before they complain about length of PG essays)
once you compete for quantity of customers/transactions, you start to compete less on quality and more on price. i believe amazon and google will win that game.
“once you compete for quantity of customers/transactions, you start to compete less on quality and more on price.”Agree. Also important in the mix of offering low cost products is having bad customer service. That way when people buy the product and it fails instead of having an easy way to contact you to complain and get a refund or replacement they simply buy another cheap product. (Optional ! after that last sentence).
agree, but that might not be the case when it comes for something for $10 – organic apples for example
Totally dependent on the situation and opportunity which is like choosing someone to date or marry.What you will find is that if you start to have an extensive list of “turn on’s” and “turn off’s” you will rule out just about everything.One of my “turn off’s” is extending credit since I’ve been down that road and it’s aggravating to have someone yank your chain who owes you $30,000. So along those lines if you extend credit it’s better to have a bunch of small customers that owe you small amounts of money. Less to loose sleep over. On the other hand if you have a good business opportunity and it involves big customers that could be great as well.Also keep in mind that large customers don’t have to remain large customers. They can allow you to grow to the point where they don’t matter. In my first company one account that I landed was maybe 80% of my business. By the time they went bankrupt 6 years later they were only 5% or so. But in the mean time the steady work they gave us allowed us to grow and add other accounts.Of course @kidmercury:disqus ‘s example is purely hypothetical. There is no reason you can’t sell something at both the fictional $10 and $100 price point. General Electric while atypical from my experience but they sell both light bulbs, refrigerators, jet engines, power plants, medical equipment etc. and until the financial crisis it was a good strategy to hedge against the ups and downs in any one industry they served.
true, a mix is best.
hey – I recently downloaded Walden to my kindle! 🙂 ..and I agree with you about tl;dr wimps like @kidmercury:disqus
“the essay was too long.”Weighs in at 12.5 pages by my calculations.”startups should focus on growth and then everything else will follow.”Everything else will follow because a rising tide lifts all boats. Growth will paper over any other issues that a startup has (remembering the early days of twitter when Mike Arrington would constantly complain about the fail whale. I mean even the complaining was good for supporting the theory that there is no such thing as bad publicity. It got plenty of people to take notice. (What I call “dead body parts on ebay” publicity).I worked for two different Silicon Valley companies in the early 90’s. The lesson that I learned at those two companies (one which Steve Blank was the VP Marketing at) was how little they cared about the details of anything that wasn’t related to sales or the product. None of it mattered, because either what they were doing was going to pan out or they would go bust. Leaving the building unattended with no security system and no guards and having people sign out on a white board? No problem! Not central to the mission!. (As only one example..) It was only product and sales that mattered. If they made money everything else would work its way out. (Each had roughly 70 to 100 million in sales iirc..)Both companies more or less failed and at morphed into something else (this was before the word “pivot” was invented). Can’t even find any wiki page on them. Blank has written a little about one of them (Supermac).
Couldn’t disagree more. Size Matters. Great films, writing, etc. escape time.
I believe this distinction above is actually more important than highlighting growth itself, overall. Look at SocialCam, for instance. There are real short-term incentives to gaming growth where every actor (angels, founders, etc.) win. In reading PG’s essay, part of the underlying message — in my mind — was to startups to either get busy living, or get busy dying, and to not confuse a weekend project with a startup. But, even if people now start to focus on growth — and they have been, given all the blog posts about how to “hack” growth, there’s a danger of it becoming more of a science, more of a formula, and less of something that happens organically over time.
yes, growth hacking has its limits.
Most people don’t growth hack for the long term. One of the most interesting things about Paul Graham’s essay is that he differentiates between weekly growth and yearly growth, because of how weekly growth compounds (albeit unevenly). Most people should be looking at those numbers and be saying that a high short term weekly growth isn’t worth it if it can kill off long term growth by killing off brand equity. The S curve of a startup’s growth is an approximation of smoothed out growth – not reality, a near fit. Really good growth hackers should be able to identify natural slowdowns that are ok to happen (much like everyone here briefly stopped growing so quickly before shooting up in adolescence vs ones they need to intervene in through other methods.(and maybe I should just change my job title to sustainable growth hacker)(and fyi, this is why sales and coupons can be sucky even though I like sales and coupons as much as the next person)
In fairness to Andrew Chen whose recent essay stimulated a lot of discussion around the term ‘growth hacking’ he is extremely clear about the difference between the real organic growth that growth hacking can amplify and premature games without a viable core product.As per his recent piece “Startups don’t need growth hackers (at first)””Startups don’t need growth hackers – at first. They need products that are really working in the market. This means users love it, that there’s lots of retention and engagement, even at small numbers.”http://andrewchen.co/andhttp://andrewchen.co/2012/0…Imho Andrew’s body of work is outstanding and a great complement to Paul’s.
absolutely and i did not mean to diss his work in any way. it is important and impactful.but some people will do it the wrong way even when Andrew explains what not to do.
Completely understand.BTWI would LOVE to see Andrew package his pieces into a book. I have tried to bully him into doing it but so far no success. How about you give it a shot Fred? And other members of the AVC community? If he hears it from enough people maybe…?I think it would be an extremely valuable contribution to startup literature. Imho his contributions are still not as widely appreciated as they deserve to be.
I look forward to Andrew’s posts just as much as I do Fred’s. In time he will get the appreciation he deserves.
I too look forward and enjoy reading Andrew’s posts. I think @myscrawl:disqus idea to package Andrew’s articles into a book is a good one
Yup, Startups are the Youth of business, so growth is the only way to reach adulthood & beyond. What is the range of runway time you look for to see these inflection points or key triggers for growth? From a launch+, is it 12-18 months or 9-12 months for eg? I think that time factor is important because it’s related to the amount needed for the seed raise which is the preparation phase for Growth.
that’s hard to say. we invested in zynga and foursquare within six months of launch. kickstarter, twitter, and etsy were closer to a year.
Read this recently – ‘First be valuable, then be social’.Some of open graph hacks are fairly easy to achieve, gets users to signup without the context or without them realizing (with one click registrations). Few startups have explored that beyond obvious, later users tend to ignore that as spam.
I can’t find a link to that, but I totally agree that “First be valuable, then be social.”
read it off twitter
What is the important growth metric – users, revenues, profits, some combination, etc.? Are there common-sense rules on this across startups or certain categories or is all startup and stage-specific?
whatever metric reflects your unique value proposition bestetsy focuses on GMVsoundcloud focuses on listenswatttpad focuses on time spent reading
something that is not straight revenues (although it may have a high correlation to revenues like GMV). Like that a lot; it ties to my other post re: mission.
I think it should be a combination of your unique value prop. AND revenues (which I guess is a way of saying, make sure your UVP is tied to revenue or a specific plan for revenue somehow).If soundcloud doesn’t have a plan for how they make X revenues from Y listens, then the more listens they get the more it actually costs them…If wattpad doesn’t have a plan for how they make X revenues from Y time spent reading, then hitting growth is really just pure cost…It all goes back to my favorite question ‘why’…identify your unique value prop. then ask as a business ‘why’ that UVP is the key growth metric (for example we want more blogs installing search because it drives more quality content and searches through our system…and that in turn gives more value to our relevant sponsored results and other premium features — helping us meet our ultimate revenue growth goals)
yes, but since soundcloud and wattpad and twitter don’t pay anything for the content on their platform they have the luxury to get to scale (whatever that is) before turning on the monetization
They don’t pay directly for the content, but they have massive hidden costs that continue to grow as scale grows (hence the need for investment).I don’t think it should be thought of as a luxury as much as a mandate (or maybe even a burden)…their model, and the fact that they are working on other people’s money, requires they get to scale pretty much at any cost asap, then once established there, eventually get to revenue/profits at any cost…a bigger risk, with probably a bigger payoff…but so much more rare/difficult to pull off properly.I think of Twitter as an exception because they hit a growth curve that I think even they weren’t planning or directly trying for…soundcloud and wattpad have more traditional experiences in successfully attempting to achieve growth…but even still, finding the right path to revenue growth *must* be a big part of what keeps them up at night.
that’s a nice trick.
You blogged on this a few months ago. It was a solid post.
My intuition for what a startup is has always been growth and something else. I can’t quite define it as I sit here, but it has to do with impact/change/mission etc. That second thing is as critical as growth for me as an entrepreneur, perhaps because the driver for me and other entrepreneurs I know is having a vision that drives us and growth is a scorecard in 1) knowing that I was right and 2) proving that I am capable of executing on it and bringing my vision into existence.In that sense, it does not seem correct to me that:”The good news is, if you get growth, everything else tends to fall into place. Which means you can use growth like a compass to make almost every decision you face.”I would say to stay on track, you need to make sure that second part of a startup I refer to above is also part of your compass.
Fred, where does a “value” philosophy stand vis-a-vis “growth” philosophy?Historically, the best products have not always been lucky to catch growth quickly, but they always have had intrinsic value.
that’s where the authentic and organic come in
So Fred i guess you would not invest in startup which has phenomenal growth thanks to a good SEO strategy right? a company like Yelp?
well SEO is fine if it allows you to acquire users who become organic users over timei think that is certainly a big part of the yelp storythat’s why retention and engagement matter
ok. this is exactly what i wanted you to answerGrowth only matters if it’s followed by Engagement and stickiness. Growth alone does not define a good startup. Growth+stickiness doSEO dependant business are highly risky: so many companies died because Google killed them by just tweaking their algoIn the app business: so many developers focus on number of downloads and activation vs Life time value and engagement…You can’t build a startup with growth only in mind: doing so is certainly a shortcut to death. Focusing on Growth and engagement is the only way to build a sustainable startup
i totally agree
But even SEO benefits reveal themselves gradually, so there is ample time to see the traction progressing.
Things I always wanted to know – how do you measure engagement vs pissed off and confused users with standard web metric tools? Happy Engagement is not such a clear concept.I’ve also thought about this – do I want serious engagement all the time? Maybe my product fits some sort of specific need (I’m looking at you, Pollenwear) and people engaging in it outside of that point would be silly.
net promoter score is very useful for this stuff
Yes, but isn’t NPS a lagging indicator? If you have a high NPS you already know it.
Totally. We should away from simply recommendation and move towards something that reflects the network effect meaning you NEED them there to create VALUE FOR YOU vs. you like the product/service therefore think someone else might
You measure engagement in a manner that is tailored to your product not with ‘standard web metric tools’. In other words you have to create a metric that reflects the core activity of your business.
but your base will be that tool (and you bring the data out) unless you custom build (and many startups I would hedge don’t need to custom build tools)
I chimed in over here…. http://howardlindzon.com/ca…
what’s the difference between growth and momentum?
Subtle. Growth is natural and momentum carries growth in unnatural ways at the end of long runs or after the end of the run
yup. i agree.
Obviously there is momentum around early stage capital raising as one investor attracts another but in the markets momentum is the combination of company growth and the belief by investors that growth will continue which creates momentum in the stock beyond the growth capable of the company. Too little supply in combo creates stock momentum.
Interesting – They are opposite and its worth thinking about the implicationGrowth is a change Inertia is resistance to change Momentum == Inertia So Momentum is resistance to growth ! Something with little mass (A squash ball ) accelerates much more when you kick it than say a concrete cow (and hurts less – for every concrete act of cruelty there is an equal and opposite sore toe)Acceleration is growth in speed in a period of time – The more momentum the less growth – If you disagree let me mention my Big Brother (Picture below – nickname Isaac)WikiQuote >>For example, a heavy truck moving fast has a large momentum—it takes a large and prolonged force to get the truck up to this speed, and it takes a large and prolonged force to bring it to a stop afterwards.>>Newtons (Force = Mass * Acceleration )
That was a great essay, and I don’t think it was too long. He had a bunch to say and covered it beautifully.The only issue I have is when he says you are not a startup if you aren’t on a massive growth curve. That’s bullshit. Make up a different term but you can be a technology startup that isn’t growing at 10% a week.The key is find something that you have a passion for and then follow it. Measure growth, work for growth, understand what is constraining growth. Here is where I differ. Then figure out what you need from a capital and resource perspective and be happy with the result.If it turns out you don’t need to raise a bunch of money and you aren’t going to have an exponential that’s fine. You can focus on profitability and sustainability. That is where I see so many technologist fail. They think if I don’t raise $5mm I’m a failure. That is where people should watch David Heinemeier Hansson’s talk it is a classic. https://www.youtube.com/wat…
I think the key is to focus on ‘growth of revenue’ or even better ‘growth of profits’.Focusing on growth alone can be a bit like chasing fools gold…especially if you are focusing on the wrong growth or worse don’t have a growth goal or plan to achieve your growth goals.And if your growth isn’t focused on revenue or profits, then you’re making a big and costly bet with very low payout odds…you’ll likely need a lot of money and help to reach your growth goals (and probably only a select few with experience/history of success on their side are really going to pull this off)…and even when it’s all said and done, you’ll still have to eventually figure out the revenue and profit growth goals (ala Twitter today).I’ve been saying this a lot lately (and am actually applying it myself)…but to me the process is to figure out your version of a cash machine (ie. I put in $1 and I get out $2)…do this on a small scale until you’ve got it really figured out and really understand your customers, market, business, etc…only then can you really identify if you *need* outside investment and just what/how/where/when it’s going to help you reach your larger growth goals.
Agree completely. And the thing is you can figure out how to make $9 in gross margin for every $10 you sell once you hit breakeven if you stay lean pretty quickly you can do just that in operating profit. Make $1 for every $2. If your model is recurring its just like getting a big flywheel going. That is the beauty of technology companies. That is my love my passion. You can’t do that “cutting hair” as he says because you don’t have an incremental cost of business that approaches zero.
I love your idea of building your own cash machine ..thats the essence of becoming an entrepreneur – no matter what the scale, startup or no startup.Cheers to that my friend![edit – but cash machine only after passion 😉 ]
I think startup would generally be considered to be a VC backed tech based company.Your points are valid and Mark Suster is likely the patron saint of the question Do You Really Need VC?
that is an awesome video ..love the “fortune 5 million” as a target customer base 🙂
I still love Paul’s essay, How to Startup a Startup. What a great read that one is. I regularly tell folks to go read that one. A gem. Thanks Fred for regularly writing such great stuff.
yes. that one is a gem for sure
“longish and excellent essay”It’s a seminal essay which will be no doubt referred to in news.ycombinator.com threads for years to come whenever discussions on what a startup is come up among groups of people that are in “the age group” that is swinging for the fences.Using an example such as a barbershop isn’t really valid though although I understand why he uses that to prove his point.As only one example there is http://en.wikipedia.org/wik… which has about 750 locations. Nothing to prevent someone who opens a single barbershop from expanding including by franchising (HC is privately owned but I don’t believe they franchise)http://haircuttery.com/home…In 1973, newlyweds Dennis and Ann were having dinner at a restaurant when the conversation turned to their jobs. Dennis had been working for his father’s chain of Washington area beauty parlors, Louis Creative Hairdressers, but he was ready to venture out on his own. Ann was uninspired by the conservative cuts at the downtown Washington beauty salon where she was a Stylist. The couple agreed—it was time to break free. Together, Dennis and Ann drew up a rough business plan on a napkin detailing a new kind of hair salon where you could walk in without an appointment and get great service for the whole family for a fraction of the cost. Unsure their idea would fly in a generation conditioned to fussy beauty parlors and clubby barber shops, the Ratners opened the first hair Cuttery in Virginia. Before the year was over, they opened two more. “We knew we wanted to change the industry,” Dennis says, “and there was nothing holding us back.”The first Hair Cuttery was born in West Springfield, VA in 1974. Today, it represents the largest, privately-held salon chain in North America. The brainchild of Dennis and Ann Ratner, Hair Cuttery now encompasses approximately 12,000 Associates with over 750 Salons in 16 states. The phenomenal growth of the company can be traced back to its original business model which consisted of three concepts—convenience, price and consistency.Lest you think this is an outlier it’s not. There are many businesses that start with a single location and expand to multiple locations, states, countries. Starbucks? McDonalds? Uhaul? Papa Johns?
I too thought of that example.
I thought his definition of startup was a little narrow as well.
I would LOVE to the financials at UHaul.
I was thinking exactly the same thing about franchises ..and if the entrepreneur came up with that from the start.I wonder how many stories of successful businesses like starbucks or franchises like subway include founders trying to get VC and being rejected because the S-curve didn’t exist or was not obvious.
If you are a Drucker Disciple, this only makes sense.He says: ‘Organizations exist to attract customers.’PG says: ‘Startups are about growth.’How can you say that you are attracting customers if you re not growing?
PG’s essay is pointless masturbation, please explain why I need to join in on the celebratory circle jerk?
why do you think the essay was pointless
what’s the point in saying that the sky is blue?
yah i’m not getting that either although i’d say it’s a really really long post and probably could have been put a little more succinctly ps. put message in wrong place this is in reply To shana
i disagree. i think the point that growth should be the objective of startups is a good one.
what else would be the point of a startup?
Making money, solving problems, building a team, building a brand, etc
cmon, those are common to any business,
exactly and what paul is saying is that they aren’t the thing that matters most
wha? Your and PG’s best startups all made money: Dropbox, Airbnb, Etsy. All of them solved a problem (e.g., Drew Houston lost jump drive, Airbnb couldn’t get hotel). All of them built a brand (getDropbox->Dropbox switch was precisely the point the growth started). Not sure how you can grow a company with a 2 man operation.Again, I’m not sure why you and PG can’t just go to google.com and facebook.com and get this masturbating out of your system in private.
because we like to do it in public. that’s what this blog is all about. if it turns you off, please stop coming here.
I mostly like your and PG’s articles but this one just makes no sense. Too circular/reductionist such that it is pointless.
This is off-topic, but with mention of Fred’s relationship with Paul, I was reminded of Fred’s post that published their email (and then-private) exchange around Airbnb, in which Paul and Fred debated the merits of an early-stage investment in Airbnb.http://paulgraham.com/airbn…I found that so fascinating. I hope Fred and Paul (and others) agree to share ‘what they were thinking then,’ as I think so many can learn from it. What I think it surfaced was a rare humility, a rare window and a rare set of learnings.Paul’s essays are great. The high-level thinking is helpful. But to see the in-the-trenches writing at *the time* of decisions is so much more insightful.Thanks for highlighting one another.
there are a lot of gems like that in my gmail account 🙂
that was one of most interesting PG essays for sure – Fred has written a few times about them too: https://duckduckgo.com/?q=a…
Agreed. Fake growth is about (often cheap) tricks while real growth is about design’ meaning it in a big way, ie something core to the product.
Great chief, thanks for the pointer to recent pearls, will head there now.
I love Paul Graham’s essays – but this left me feeling like “startup” was muddier — especially by the time I got to the ‘rate’ and ‘compass’ sections.I can imagine entrepreneurs and investors trying to fit things into a S-curve too early …and optimizing too early …especially on difficult ideas. (Maybe not though.. maybe this is counter-balanced by the entrepreneur’s story and vision about the future?)BTW – see paul grahams essay about working through difficult problems: http://paulgraham.com/schle….Finally, with the discussion around hitting growth numbers I’m left wondering if companies that are working on *hard*, slower moving businesses would even be startups – SpaceX, Tesla motors, virgin galactic (?) . If not, thats sort of depressing.
Growth is the fountain by which Wall Street thirsts, so therein lies where markets are driven. Lots of good conversation on growth with Wilson, Suster, Graham and other recently, but what happens where there’s lower growth than public markets look for and the portfolio company sits in a venture portfolio with no love, thus an orphan, albeit a cash flowing one at that. To support Fred’s bi-modal VC return fallacy, there is real value here to be had.I could make a long insightful post that no one will read but the wonkish PE investor, but to summarize… if you have a solid cash flowing business,but low growth and esp with a market cap of < $1b, it should not be a public company b/c Wall Street doesn’t care about you – and NEVER will as it just just too expensive to cover you given the new world order. Yet, too many public small cap boards take on too much risk in search of that brass ring and get Wall Street’s attention. The same happens in more private boards than it should b/c the VC investor is looking to achieve as high a risk/reward valuation as possible.If that business, that, say did $100mm of revenue and 12% EDBITA but only growing at 5% to 12%, private boards would run the company differently than the way most public boards are oriented. They’d invest in the core business to remain relevant and competitive, but not chase growth with too much risk. They’d buy out other share holders and then look to dividends once the inflection point hit.I’m not saying this is the focus of the VC model, but more often than VCs want to experience, they find portfolio companies that miss their mark in terms of getting into geosynchronous orbit, but still have solid, cash flowing businesses, but low growth so options are limited, esp as a fund comes to EOL.See this chart for a good explainer on how companies move from the left, VC funded that don’t yet return the cost of capital (Stage A) to Wall Street darlings growing rapidly (Stage B) to cash flowing machines, albeit low growth (Stage C – think MSFT) to dying winners in Stage D (think Dell) to distressed companies in jeapadry of going out of business in Stage E (e.g. Blockbuster). Very few companies move from Stage D to Stage B (Like Jobs took Apple in a rare feat of mgmt excellence).All product companies go through stages and the ones with the ability to constantly turn out new products in attractive growing markets and stay in Stage B and maintain growth, will be the ones most rewarding their customers and employees, thus shareholders as well.This chart will tell 1,000s of words and is from a firm I’d advising.
i’ve got a bunch of these companies i would gladly sell to you or someone elsethey don’t work for my model but they could work for someone else’sbut until then, i pay as much attention (actually more) to them as any of our other investments
see http://www.meridianohc.com. They are buyers of your PCs that meet their criteria and closing on their latest fund. Happy to intro you to CEO if you’d like. email me at lblaylock at whoat dot netsee also their white paper http://meridianohc.com/wp-c…
Growth is the fountain by which Wall Street thirsts, so therein lies where markets are driven. Lots of good conversation on growth with Wilson, Suster, Graham and other recently, but what happens where there’s lower growth than public markets look for and the portfolio company sits in a venture portfolio with no love, thus an orphan, albeit a cash flowing one at that. To support Fred’s bi-modal VC return fallacy, there is real value here to be had.I could make a long insightful post that no one will read but the wonkish PE investor, but to summarize… if you have a solid cash flowing business,but low growth and esp with a market cap of < $1b, it should not be a public company b/c Wall Street doesn’t care about you – and NEVER will as it just just too expensive to cover you given the new world order. Yet, too many public small cap boards take on too much risk in search of that brass ring and get Wall Street’s attention. The same happens in more private boards than it should b/c the VC investor is looking to achieve as high a risk/reward valuation as possible.If that business, that, say did $100mm of revenue and 12% EDBITA but only growing at 5% to 12%, private boards would run the company differently than the way most public boards are oriented. They’d invest in the core business to remain relevant and competitive, but not chase growth with too much risk. They’d buy out other share holders and then look to dividends once the inflection point hit.I’m not saying this is the focus of the VC model, but more often than VCs want to experience, they find portfolio companies that miss their mark in terms of getting into geosynchronous orbit, but still have solid, cash flowing businesses, but low growth so options are limited, esp as a fund comes to EOL.See this chart for a good explainer on how companies move from the left, VC funded that don’t yet return the cost of capital (Stage A) to Wall Street darlings growing rapidly (Stage B) to cash flowing machines, albeit low growth (Stage C – think MSFT) to dying winners in Stage D (think Dell) to distressed companies in jeapadry of going out of business in Stage E (e.g. Blockbuster). Very few companies move from Stage D to Stage B (Like Jobs took Apple in a rare feat of mgmt excellence).All product companies go through stages and the ones with the ability to constantly turn out new products in attractive growing markets and stay in Stage B and maintain growth, will be the ones most rewarding their customers and employees, thus shareholders as well.This chart below will tell 1,000s of words. It is from a firm I’m an advisor to.
Thanks for the article, it is quite useful for us.One question…Could you name your favourite parameters to meassure the growth of a startup that still doesn’t generate good revenues?We are a european startup that is starting to look for a VC in the USA. But since our business model is based on a freemium model, we are growing the number of users, but the revenues are still low. Is the number of users a good parameter to meassure growth?
A great product idea will enable the startup to clear the tower, but it won’t be enough to push the org into orbit. The pathway to growth for startups is the management system put in place that balances innovation and operations. The management system has to be generative, and inclusive, and easy. Average people in a great system will outperform great people in an average system. That said, best results come from great people in a great system.
It’s why big corporations will always struggle in the new networked economy. Startups can focus on traction and delivering value vs. making profit — big Corps can’t. ps. you just gave me a blog post idea i’ll get to sometime this week so tnx 🙂