Startups Stack Exchange Archive

What is hockey stick growth?

Just to be clear, I get that hockey stick growth includes a transition from incremental to exponential growth, but it seems like there’s more to it. For example, it appears that in the context of startups that the shift from growth happens based on finding a market, which seems to be of zero use in understanding the concept, since growth of this nature without a “market” would not be possible.

In the real world, what is hockey stick growth?

Answer 954

The usual point people are making when they talk about hockey sticks is that there’s a significant initial loss-making phase, followed by rapid growth, that (very importantly) continues strongly for an extended period so that the early loss/investment phase is immaterial in the medium term.

And the usual reason people talk to you about the hockey stick is that they are burning money, fast and they want you to believe that’s a very smart move.

So of course it can be, but there are at least two other strategies relating expenditure and earnings for a startup. First comes bootstrapping, which typically breaks down into three variants: slow burn where the initial cash pile is spent uber-frugally, pennies from heaven where the startup stays north of the loss line by bringing in other income (e.g. consulting / the day job), and strike one, two, three… where a series of hopeful MVPs is deployed and developed following validation, until there’s evidence of traction.

Answer 11574

Hockey Stick Growth refers to a growth (revenue/customer count) chart that looks like a hockey stick. IE., it's fairly flat for a while then starts moving up rather sharply. It ends up looking like a hockey stick. Here's an image we made that illustrates it: enter image description here

The idea behind it is that once your product and customer acquisition strategy are well honed, all you have to do is pour more money into you customer acquisition channels and watch your business grow quickly. (This is known as pouring gas (money) on the fire (successful business). Investors love this, but the interesting reality is that for the vast majority of SaaS businesses hockey stick growth is a myth. I wrote a blog post about this myth based on my experience building, running, and selling a SaaS business for ten years; You can read it here if you like: http://lesseverything.com/blog/hockey-stick-growth-is-a-myth/

Answer 615

You say: “it appears that in the context of startups that the shift from growth happens based on finding a market”

This statement is completely wrong. The “market” should be known BEFORE the product/service is created/launched. Apart from some lucky exceptions, creating a product and hoping to find the market afterwards is the fastest way to the bankruptcy.

In a startup’s world, the “hockey stick growth” is linked to the financing of the expansion of activity and thus, to the investments that the startup can find.

At the beginning, the Startup works with the limited resources (often money and time of its founders) so the growth is slow. Once the startup finds an investor, the invested money can serve to expand the production or R&D but the most often, it’s used for marketing and for financing the expansion (new countries, new sale channels,…). At that moment, the grow can switch from linear to exponential.

Answer 672

Most basically it refers to a change in the economy of the startup. I wouldn’t necessary call it a growth, talking about startups. More correctly it’s the time, where you’re startup goes from minus to plus in income.

Most startups are somehow founded either privately,through investors or from the time spend by the founder, put in another way, there is a minus.

Lets say your startup has a minus of 10k$ the first month, next month it also has -10k$, altogether -20k$ the first two months. After 6 months, this will be -60k$. If you put the in a graph excel or other. You’ll see a downward curve. In the 7th month you start earning money, let’s say 7k$. Now the curve will change and flatten a bit. Your earnings start to grow, but you still have a minus from earlier, which keep your graph flat. If you keep you expenses at 10k$ a month and start to earn more than 10k$ a month, when you have paid the investment back, the 60k$, your graph will change and raise much faster, since you don’t have a minus anymore.

So talking about startup, a hockeystick effect indicates, that the business is making more money than it spends and that investment is earned back.

It’s much easier to understand showing a graph, but I don’t have time to make one right now, hope it helps.

Otherwise I might make one with google.docs and link it later..

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