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?