Everyone knows that unicorns don’t exist.
Or do they?
The latest findings have reported that there are now over 600 unicorns thriving in the wild. Experts in the field often cite unicorns’ unique capacity for managing hyper growth that’s allowed them to experience such a surge of success.
However, unicorns still face a perilous existence: two-thirds of unicorns never reach full maturity. This is partly due to a lack of sustainable resources in their environment, but with valuations of $1 billion or more, they are also highly coveted by collectors.
Say you want to raise a gangly young foal into a noble specimen of unicorn-ness. Where do you start? How do you make sure your prospective unicorn makes it into that elite one-third of successful hopefuls?
Fortunately for you, Process Street knows a thing or two about unicorn rearing and maintenance, and this post will cover the basic strategies of managing hyper growth for the best possible outcome: a fully matured unicorn.
Peruse the following chapters for the best advice we have to give:
- What makes a unicorn a unicorn?
- What is hyper growth?
- The 3 stages of hyper growth
- 4 strategies for managing hyper growth well
Giddy-up! (Last horse reference, I promise.)
What makes a unicorn a unicorn?
Aileen Lee, founder of CowboyVC, introduced the term in 2013 to describe the rarity of startups with valuations of at least $1 billion.
Valuating unicorns is not a straightforward process, however. As startups, their value is often determined by growth potential rather than actual financial performance. In the case of startups that are the first of their kind in their industry, measuring growth potential becomes even more complicated. When your pitch is examined by prospective investors (which takes less than four minutes on average), this potential is going to be one of the questions they want to be answered.
While some attribute the existence of unicorns to technological innovations, others claim that unicorns are merely a byproduct of an industry bubble.
Either way, unicorns exist, and there are three main reasons venture capitalists and investors use to justify the high valuations of these startups:
- Fast-growth strategy: These strategies encourage investing large sums of money in each round of financing in order to capture the largest possible market share and prevent major rivals from emerging. As a result, the company’s valuation booms with each round.
- Buyouts: Tech giants like to acquire startups to prevent new competitors, diversify their own offerings, and save resources via already developed tech. Due to competition between these giants, they generally offer a significant premium which raises the value of the startup.
- Innovations: By utilizing newer technologies, startups are able to speed up production and reach customers faster, which allows the startups to grow and ultimately reach unicorn status.
What is hyper growth?
Hyper growth, also known as “blitzscaling,” is the steep part of the S-curve that most young industries experience at some point. Phrased in numbers, hyper growth refers to the point at which the company’s compound annual growth rate (CAGR) reaches 40% or higher.
This is another fairly new term coined by then-CEO of VimpelCom (now VEON), Alexander Izosimov, who stated in his 2008 Harvard Business Review article that the hyper growth curve is “where the winners get separated from the losers.”
“[Blitzscaling] prioritizes speed over efficiency in an environment of uncertainty and allows a company to go from ‘startup’ to ‘scaleup’ at a furious pace that captures the market.” – Reid Hoffman & Chris Yeh, Blitzscaling: The Lightning-Fast Path to Building Massively Valuable Companies
Blitzscaling came about ten years later in 2018 with the publication of Hoffman and Yeh’s book of the same name. While Hoffman, Yeh, and Izosimov advocate a ruthless, almost reckless reinvestment in pursuit of growth, eagerly citing examples such as PayPal, Facebook, and Google – not to mention the Uber V Lyft rivalry – not everyone is convinced hyper growth is a sustainable strategy.
Tim O’Reilly asserts that hyper growth was a result of these companies’ successes rather than the cause. According to O’Reilly, it was product and business-model innovation, execution, and strategic focus that played the important role in these cases.
“Blitzscaling isn’t really a recipe for success but rather survivorship bias masquerading as a strategy.”
The flaw in a hyper growth strategy, says O’Reilly, is that it is more of a financial instrument than an actual business. Many investors and entrepreneurs class success as achieving a profitable financial exit as opposed to creating a long-term plan for maintaining a sustainable business.
He does admit, however, that for companies like Amazon and Airbnb who both maintained solid paths to profitability, hyper growth can be a good corporate strategy, and can provide additional benefits like removing bureaucratic obstacles or cutting off intense competitors.
The takeaway here is that hyper growth can have an amazing impact on a startup’s growth and profitability. However, it isn’t necessarily the right strategy for every startup, and before heading on a quest to achieve unicorn status, you need to carefully consider if it is the right choice for your company.
Talking of growth… to learn how Ryan Hoover, Founder of Product Hunt, acquired over 2000 users by doing things that didn’t scale. Check out this episode of our podcast Tech Out Loud.
Tech Out Loud is the only podcast that brings you the most impactful blog posts from the biggest names in tech, straight to your ears.You can also listen to this podcast on other platforms. Click to see the full list!
The 3 stages of hyper growth
While they go by different names, the general consensus is that there are three stages to the hyper growth curve. HubSpot includes a fourth step – market saturation – but for the purpose of this post, we’re going to conclude that if you’ve reached the saturation stage, you’ve soared past the curve part of hyper growth.
(It’s worth reading HubSpot’s scaleup playbook, though, for an honest review of obstacles and solutions a startup faces during the hyper growth process.)
David Cancel and Dave Gerhardt list the following three stages for hyper growth:
- The Edison Stage
- The Model T Stage
- The P&G Stage
These are good names. However, I prefer Nikhyl Singhal’s terminology:
- Phase One: “The Drunken Walk”
- Phase Two: Product/market fit
- Phase Three: Hyper growth
The important thing that Cancel, Gerhardt, Singhal, and Brian Halligan all emphasize is that these steps aren’t accomplished quickly.
“They require months or even years or rewiring, with the old adage of ‘What got you here isn’t what gets you there’ serving as your guiding light.” – Nikhyl Singhal, VP of Product, Facebook
HubSpot is actually a good example of this. According to Halligan, HubSpot progressed through Phase One in about a year, then languished in Phase Two for the next six.
The problem: their retention rate was too low to scale up.
They ended up in this situation because they couldn’t settle on a single, target customer persona. Instead, they divided their attention between two similar, but still distinct personas:
- “Ollie”: a small business owner with < 10 employees and no dedicated marketing team
- “Mary”: a marketing manager in a company of 10-1000 employees
Once HubSpot decided on a single persona, they were able to generate an actionable plan to not only attract Marketing Manager Mary, but keep her invested in their product. And, as everyone will tell you (if you don’t already know), retaining customers is much more cost-effective than recruiting new ones.
This change launched them into Phase Three, increased customer retention from 65% to 82%, and brought revenue retention up to 100%.
Let’s take a closer look at exactly what these different phases mean.
Phase One: The Drunken Walk
This stage is all about finding your product/market fit. What can you build that will pull in money somehow?
At this point, the emphasis should be on project management and product development. Essentially, your teams need to be manifesting the founder’s vision.
Phase Two: Product/market fit
By this stage, founders will be busy working on the scaling aspect of the company. To do this, you need to keep an eye on both efficiency and productivity. Process innovation is crucial at this stage; without working processes, your scaleup ambitions will stagnate before you even get started. Meanwhile, the internal teams will be concentrating on cross-team communication and releasing product improvements.
The ideal equation is to spend X on customer acquisition while receiving three times X in return.
Like HubSpot, this is the stage you may find yourself lingering in longer than you wanted or planned for. The temptation will be to scramble around trying to make knee-jerk tweaks that ultimately have little effect.
If you find yourself stuck in Phase Two, take a beat and examine your strategy. Are you dividing your resources inefficiently? Which persona are you aiming your product at, and should you be? How well are your teams communicating with each other?
Asking yourself a few simple questions like these will help you pinpoint your roadblock and create a path to move forward.
Phase Three: Hyper growth
Phase Three is not the point where you stop and celebrate. You haven’t won yet.
This stage is all about innovating and scaling the product. Your teams will need a clearly defined roadmap for introducing new products while supporting existing ones in order to maintain the company’s long-term vision over multiple quarters.
It’s also important to continue maintaining that three-times ratio of customer acquisition costs (CAC) and revenue because Phase Three will require a high level of reinvestment to keep up with innovation and new staffing needs.
If you haven’t already, you’ll likely need to start adding in a new layer of management or leadership as your company continues to grow.
Phase Four: Saturation and scale
As I said earlier, by this point you’ll be past the actual curve part of hyper growth. You’ve built your product, found the right market fit, targeted your personas, and reaped the rewards.
Oh, come on: you know it’s not that simple.
Now that you’ve got your external relationships on solid ground, you need to turn your attention to your internal workings.
Growth is never painless. When your startup’s growth is skyrocketing, this is even more acutely felt. As a founder, you’ll face new challenges, new demands, and new obstacles you may not have set procedures in place for yet. Your management teams are going to feel this strain as well – and, like or not, they may not be able to scale as quickly as your company does.
“The thing is that it’s not that these people aren’t growing. It’s that they are either not growing fast enough or there’s a barrier — ego, company structure or something else — that stalls them and their company. Even incredibly talented people at fast-growing companies fall behind.” – Khalid Halim, Founder
Khalid Halim says there are two fundamental truths that will surface as your company grows that are part of what he calls the “law of startup physics.” This law states that humans grow linearly while companies grow exponentially.
To rephrase that: a year from now, you will be a year older. No more, no less – that’s set in stone. That’s how biological organisms grow.
A year from now your company that currently serves 100 customers may have 1 million next year. It could have 5 million, or even a billion. There’s no real limit to the growth potential of your company over the next year.
Seems obvious, right? But how does it apply to your executives? Let’s look at Halim’s two truths:
Truth #1: Your startup will outpace most of its executives as it grows.
The manager you hired to supervise 20 people that was able to grow the team to 60 is floundering because they’re not equipped to manage a team that grew that large that quickly. Skilled management isn’t a natural ability; it takes experience and refinement.
If you take someone who’s only managed small teams, and ask them to manage one two or three times what they’re used to without extra guidance, it’s not going to go well.
At this point, Halim says you have to do “turn the team,” a phrase borrowed from venture capitalist Fred Wilson. Wilson’s stance is that, while scaling, a company will turn over its team three times.
Halim puts a slightly different spin on it. Yes, you can fire your manager. That’s one option, and it’s the most frequently used option.
There is an alternative, though: you can hire above that manager.
Sure, this will require some delicate and uncomfortable conversations – but so does firing someone who’s been with you since day one. It’s also entirely possible that this manager won’t want to report to a new person who comes in to oversee their work. People may feel like they’re being replaced or demoted, but what needs to be the central point of the discussion is that this move is about growth – the company’s and the manager’s.
By hiring a more experienced executive above the struggling manager, you’re providing a mentor to help them learn the skills to grow alongside the company.
The bottom line: your company can and will grow faster than your executives can keep up with because of the limits of linear growth. You need to have a plan for how to deal with that by the time you reach Phase Four so your company’s growth isn’t restricted as a result.
The founder is a mere human, too, though. Will the company outgrow them as well?
Truth #2: The law of startup physics doesn’t apply to founders.
This is true for one very simple reason: the company exists because the founder imagined it, convinced others it was a good idea, and inspired enough confidence that those people helped make it happen.
As Halim points out, while humans can’t grow exponentially, we do have one exponential ability: telling stories. This is the role of the founder: they are responsible for telling the story of the company, establishing the background of future products, and providing the vision that leads the company.
While executives are concerned with the data of what’s already happened, founders need to look at what doesn’t yet exist. As a result, the company’s growth is dependent on that founder’s ability to “see the future,” so to speak – or at the very least, surround themselves with other creatives who can.
4 strategies for managing hyper growth well
All of this is very interesting, Leks, you say, but what about hyper growth in my startup?
It’s a fair point, but don’t worry – I haven’t forgotten. I promised you strategies, and strategies I shall deliver.
In reality, there are probably methods of super-scaling your startup that are as unique as the companies that use them. However, there are some tried-and-tested roads to take, forged by some of the most unicorn of unicorns.
Focus on innovation
In 2012, game company Tiny Speck realized that their in-development game, Glitch, was a lost cause. Founder Stewart Butterfield announced the death of Glitch on Twitter, and that seemed to be an end of sorts.
Something interesting happened at Tiny Speck, though. They’d developed an internal communications tool to link the US and Canadian offices which turned out to be pretty awesome.
In August of 2013, the beta version of an unassuming app by the name of Slack was announced. Less than six months later, Slack emerged from beta into full release with the lofty ambition of battling out email for top team communication tool.
In less than a year, it was valued at over $1 billion. The 2020 valuation sits comfortably at $17 billion and Salesforce’s acquisition of the company for $27.7 billion.
It’s not hard to see why. Process Street uses Slack for all of our internal communication. I can’t even remember the last time I sent an email. I won’t lie – at this point Slack basically manages my whole life.
I communicate with my team, and the rest of the company. My calendar is synced with it so I get all my meeting and appointment reminders. We have bots for internal use that push checklist data, use Zapier integrations, and automate all our most tedious, repetitive tasks.
Slack achieved all this with a focus on innovation. They provided a tool that made team collaboration effortless, with the ability to store history, search intuitively, and add users quickly. Once one team signs on, it’s only a matter of time before the rest of the organization follows.
Skeptical? One writer on our team started using Clockwise (which also integrates with Slack, btw). After just a week or two, over half the team was using it – without the writer even suggesting it to us.
Okay, okay. I could go on about Slack, but they aren’t the only game in town – nor is innovation the only possible strategy. After all, not everyone gets to invent the wheel, right?
One weekend, Brain Chesky and Joe Gebbia rented out a couple of air mattresses in their apartment to make some extra cash. During that weekend, lifelong friendships were formed with those very first guests.
That weekend became the genesis of Airbnb.
I remember my own first encounter with Airbnb. It was still in the early days, but it still seemed like a more viable option than couch-surfing – or at least, somewhere between sleeping on someone’s floor beneath an afghan and the absolute unaffordability of staying even in a Motel 6.
Of course, everyone I knew was convinced I was going to be murdered or have my organs harvested or something equally sketchy; like I said, this was before Airbnb became a household name. But, like most struggling 20-somethings, I only saw one thing: cheap.
It turned out to be more than that, though. I won’t say Airbnb has provided any lifelong friendships, but it’s certainly offered short-term best friends. That is the story – and above anything else, it is the story Airbnb is selling – that connects with Airbnb’s customers.
You have to understand your customer. It’s just that simple. If you miss that step, no one’s going to care how great your product is. They won’t even know about it.
Chesky and Gebbia have hit snags every step of the way, but the company was valued at $31 billion in 2019, and that is a direct result of their customer-centric approach.
Build scalable systems
It started with three guys in Paris who couldn’t get a taxi one night in December. Since then, Uber has been on the frontline of ride-sharing developments – both positive and negative. Much like Airbnb, Uber created something that didn’t previously exist, and that caused problems when it came to regulations and legality.
Despite their legal troubles, however, Uber has managed to continue its expansive growth over the years – operating in 700 cities as both taxi and delivery services and valued at over $82 billion in advance of their IPO release.
How did Uber do it?
Simple: they stayed digital. What started with an app, stayed an app. Users were able to request an Uber from anywhere with a push of a button. More importantly, drivers were able to apply online rather than in person, which streamlined the expansion process.
Uber built systems it could scale easily. Once you’ve got a digital infrastructure in one location, it’s not that difficult to extend it to another location.
When you start out, you need to focus on systems that help your company work efficiently, but you also need to keep an eye on the future. Will the systems that drive your company with 25 employees still work when you have 50? What about 500? Or 1000?
Knowing where you want your company to go will allow you to create a roadmap for improving your standard processes and keeping your startup scalable.
Remember culture and mission
I spoke earlier about the importance of focus on your customers, but there’s another group of people you need to focus on as well: your employees.
There is an increased risk of attrition and burnout during the different stages of hyper growth. It’s a stressful time where everything in the company is changing at an exponential rate, and it can be difficult for teams or individuals to keep up or accept those changes. A strong company culture promotes team cohesion and enables employees to adapt to every change that comes at them.
We have weekly marketing all-hands, and monthly ones for the whole company. As a remote company, these meetings are the few occasions where a large number of us are interacting with each other in real-time. We have a few traditions we follow every time.
First, we go over our mission statement and values. A different person reads them out each time and puts their own spin on it (someone wrote a rap of it at one point, which was pretty spectacular).
This keeps Process Street’s mission and values fresh in our minds. It’s a little weekly reminder of what we’re all trying to achieve, and that we’re all trying to achieve it together.
Our second tradition is about appreciation – or kudos, as we call it. At the beginning of every meeting, we all have the opportunity to give kudos to anyone else on the team.
When we share our kudos during meetings, not only are we showing gratitude to the person receiving the kudos, but we’re reminding each other that we’re in this together. We’re a team, and, as hokey as it may sound, the concept of teams and teamwork is at the heart of Process Street’s company culture.
The last word
Hyper growth can be an exciting time for a startup, but it’s not without its risks and challenges.
Huge risks and huge challenges.
The more you grow – and especially the faster you grow – the more your systems – both the tech ones and the organic ones – are going to be stretched to the max. While reinvestment is a key part of generating hyper growth, you also need to make sure you don’t end up with runaway costs bleeding your margin dry.
Be strategic about the steps you take. Build solid processes for managing your business – and document them in a structured, internal knowledge base. Remember to scale your culture and your systems, and never forget about profitability.
With a little luck, some thorough planning, and a few great leaps, you may just find yourself with a unicorn.
Is hyper growth sustainable? Is it an anomaly of an industry bubble? How likely is it for companies to become these rare and fabled unicorns? Share your thoughts in the comments!
Great strategies to reach the unicorn status.
Hyper growth for a business is not impossible, there are few factors which are responsible and can help to manage hyper growth. Subscribed your blog.