The growth strategy of a startup is a crucial subset of overall strategy. Startups and scale-ups are almost by definition rapidly growing organizations.
As YCombinator founder Paul Graham puts it:
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.
Needless to say, investors have a strong preference for fast-growing startups.
Startup management teams have to make key decisions about growth in their strategy process:
- How fast should the company grow? The maximum possible growth speed is not always the best choice, but particularly fast growth can also be a competitive weapon.
- What external and internal factors will influence our growth and how can we control them?
- Which resources do we need to get in order to reach our growth goals?
Growth influence factors
According to Hoffmann and Yeh, there are six key factors influencing growth:
- Market size: The bigger and more quickly expanding your market is, the easier it is for your company to grow.
- Distribution: Finding a particularly efficient route to market is a major growth driver.
- High gross margins: Healthy unit economics provide a startup with the cash needed to grow faster.
- Network effects: Positive network effects not only speed up growth with little additional effort, they can also help sustain growth in the long run.
- Product/market fit: As Mark Andreessen put it in a legendary blog post, product/market fit is the only thing that really matters for startup success. Once you find a sufficient amount of it, the market will pull product out of the startup.
- Operational scalability: Execution is a precondition for successful growth. The lack of operational scalability is a key limiter of growth on the other hand. There are few things more problematic for a startup than not being able to grow as fast as the market would allow due to weakness in operational execution.
Hoffmann and Yeh: Blitzscaling
Great insights into the scaling secrets of Silicon Valley rocketships. Many good points for earlier-stage startups too.
Harnish: Scaling Up
Similarly useful hints on how to best scale a business.