How do you define startup success? If you use money as a measurement, know this: 72 percent of all startups stall before they get to $100 million; only 3 percent ever see $1 billion.
These numbers come as part of a new McKinsey & Company report on the nature of the businesses that make it to the nine- and 10-figure realm. The report looked at 3,000 companies, between 1980 and 2012, bringing in $100 million to $1 billion in revenue.
Getting to those milestones may have something to do with the speed of growth and a business's ability to iterate a second-act product, both of which keep many businesses from hitting the "stall zone" before reaching the $100 million threshold. So what differentiates the startup that makes it to $100 million from the one that doesn't?
Beyond the Stall Zone
A hundred million dollars, and then $1 billion—these are the numbers that emerge as a kind of Mason–Dixon line in the McKinsey report. They mark a difference between companies still largely beholden to the whims of outside powers and those that fall within the milieu of sustainable, independent revenue streams fed by ever-accelerating growth.
That is, once a company hits the $100 million mark, the report notes that it often then fast-tracks to $1 billion—typically growing at a rate of 50 percent within two years of the milestone.
How do these companies do that? They have several characteristics in common:
They excel at market creation. After $100 million, fast growth is deeply connected to the company's ability to create new markets—and to bring users to those markets by the hundreds of millions. Facebook and Google are good examples.
They disrupt. In many cases, the startups that went for their nine- and 10-figure mark did so by breaking rules, replacing conventional business models with new iterations. Examples include eBay and Salesforce.
They set new standards. Rapidly increasing revenue, in the report, was also tied to the creation of a product that drove growth in perhaps atypically aggressive ways. Take the digital document format that Adobe put on the table: In many ways, the company hit its milestones because of that standard-setting move.
Finally, the report noted that a key moment for companies that reached $100 million was when they were able to start an "act-two" product while still enjoying profits from their first-act success.
Though it's not mentioned in the report, HubSpot seems to be reaching for this goal in this way. The company is deploying new products—a marketing tool called Signals, and a separate content-management system—all the while promoting its inbound-marketing platform as a key component of its $77 million-plus in sales. That's up 48 percent from a reported $52 million in 2012—and that's right on track with what the McKinsey report describes.
So how can you make sure your company hits $100 million, and what are the best practices that can help fuel further success?
- Make sure the addressable market size is large enough to grow a sizable business.
- Partner with a great founding team or hire experienced management. Surround yourself with great people. As Eddie Lou, co-founder and CEO of Shiftgig, puts it: "It takes people to scale large disruptive businesses."
- Continuously innovate. If you stop innovating, competition will catch up. Also, if you stop innovating, then you won't come up with an act-two product. Never rest on your laurels.
- Always keep an eye open for additional financing. "Very, very few large companies are built in a short time via cash flow only," Lou says. "Finding like-minded financial partners will help add fuel to the fire when you already have great teams, and innovative products in large-market opportunities."
Except for a select few who launch the right product at the right time, disrupting industries and engaging millions, winning big never comes easy. You'll have to work hard to hit that nine-figure mark. But these tips can help you start your journey toward reaching your $100 million milestone today.
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