The 4 stages of successful startup growth

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Employers are offering their employees more innovative, scalable benefits, such as protecting them from cyber fraud, identify theft, or even prescription drug efficiency testing, from emerging companies looking to make an impact in the benefits space.

Which of these businesses will succeed and flourish in the next 10 years, and which ones will be flops? Well, it might depend on how effectively those innovative benefit providers can manage their early "blade years" — when a startup’s profits are flat — in order to achieve future “hockey stick growth” —when revenue skyrockets and customers come calling in record numbers.

Exceptional startups such as Uber and Instagram make it seem like success should happen fast, but more often than not, that’s not the case, which can lead founders to abandon their efforts too soon because they’re not seeing rapid revenue growth and can’t get funding.

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I was curious about how successful startups are actually created, so I set out to conduct a study, which I eventually turned into my first book, The Hockey Stick Principles. I interviewed more than 170 successful founders, obtaining details about their first years, including revenue growth, funding, the changes that took place in their businesses and more. All but a small handful of those startups had revenue growth curves shaped like a hockey stick, so “hockey stick growth” should indeed be the goal for most founders.

When examining these startups’ growth patterns more carefully, each followed a path that can be broken down into four distinct stages:

1) The Tinkering Period: The tip of the blade, or the time when you first develop and hone your idea before you quit your day job.

2) The Blade Years: These are the formative years, after founders have fully committed to their idea, when growth can be relatively flat and navigating the unpredictable process of creating a company can be rocky.

3) The Growth Inflection Point: Where blade meets stick, the crucial point in time right before your business takes off when the founder finally seems to get traction and is connecting the dots.

4) Surging Growth: Once your company proves that it has potential, you need to optimize that growth and scale up in a sensible way.

Managing the Blade Years is tricky business

Only successful startups survive long enough to get to the third stage because The Blade Years is such a challenging stage, and often drags out longer than expected, so many founders give up — often too soon to make their idea viable.

Despite the difficulties of The Blade Years, it is also when a startup’s most important work is done: Discovering a market that is truly excited about your product offering and figuring out a scalable business model that generates adequate positive cash flow to grow at a solid rate.

How long should a founder keep on the blade? Well, it depends upon what your goals are. If you’re trying to build the next wiz-bang startup unicorn, making pivots could be a smart strategy. But if you’re building a niche company that fills a $50 million market or less, sometimes sticking it out during The Blade Years and tweaking until you discover the right formula is the better approach, as was the case with my own startups. Your gut instinct is probably your best guide.

Martin will speak further on this topic in a keynote at EBA’s Workplace Benefits Renaissance on Wed., Feb. 28.

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