Revenue Growth for Startups isn’t Linear

There’s plenty of jargon terminology in startupland, one of which is ‘hockey stick growth.’ The idea is that revenue growth isn’t linear but rather starts out really slow and at some point (hopefully) things really take off.

Imagine the annual revenue numbers as follows:

  • Year 1 – $75,000
  • Year 2 – $150,000
  • Year 3 – $300,000
  • Year 4 – $1,000,000
  • Year 5 – $4,000,000

So, if the company did $4M in Year 5 revenue, and they are on the accelerated growth part of the hockey stick, their growth as a percentage basis is higher than the earlier years and on an absolute basis it’s tremendously higher. The value creation for most successful startups takes place when they hit the accelerated growth portion. From a startup valuation perspective, high growth is significantly more valuable than low growth, everything else being equal. Revenue growth for successful startups is almost never linear.

What else? What are some reasons revenue growth for startups isn’t linear?

One thought on “Revenue Growth for Startups isn’t Linear

  1. I always thought the revenue growth curve of startups eerily followed the adoption curves described in Everett M. Rogers’ book Diffusion of Innovation.

    http://en.wikipedia.org/wiki/Diffusion_of_innovations

    My question has always been how do you get leading indicators of slow, fast, or even negative growth to entrepreneurs so they can make appropriate statements as to their progress? To grip and grin until you see a few years of sales data manifest themselves is a process many cannot endure (no excuse, but I have seen founders give up on good ideas too early and others pour their lives into ideas that never pan out)

    Always great posts, keep it up.

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