Over the last 20 years, there has been an ever-growing distinction between starting a business and founding a high-growth startup.
The former had always been inclusive of the latter. Until lately.
At some point in the 2000s, the high-growth startup became its own animal, so to speak, with a preference for quick, robust market growth, which required a mandate for even faster revenue growth, which in turn forced an unflinching reliance on outside investment, usually venture capital, at the earliest stages of the startup’s lifecycle.
5 Things to Know About High Growth
- It has historically required venture investment.
- It often requires multiple rounds of investment at higher valuations.
- High-growth milestones are harder to reach with shorter time periods.
- High tech has historically required a high-growth strategy.
- High growth has historically almost always required a focus on the unknown benefits of cutting-edge tech.
However, over the last few years, the evidence is mounting that this one-win-in-ten investment approach is no longer attractive, as money has become more expensive to put to work. The high-growth approach has necessarily developed into a singular kind of strategy that has less to do with sustainable, repeatable new business growth mechanics and more to do with return on investment at all costs.
Today, the venture-backed high-growth process is more like a means to its own investment end. It has over-indexed on the destination at the expense of the journey, so to speak, and it often sabotages and cannibalizes said journey, usually sacrificing the destination when the dollars required to extend the journey run out.
This is not great for founders, and it’s getting worse. Venture investment is beginning to sound like greater-fool theory to a lot of founders, and in some sense, it is. But I don’t want to disparage venture capital or the foundations of high-growth strategy.
I will tell you that we’ve reached a point in time in which most of the riskier aspects of venture-backed high-growth strategy are no longer necessary to achieve those same ends, as long as everyone is satisfied with numbers in the millions instead of billions.
A lot of experienced founders I’m talking to these days have decided they can live with that. So let’s talk about a better approach to startup growth.
Slow and Steady Wins the Race
Strategically, high-growth strategy is exactly what it sounds like.
Steady growth is more aligned with what we call small business. These businesses, like all businesses, still require an initial outlay to get started, but the growth models and business plans target smaller, more manageable and achievable growth, which results in smaller potential returns over longer periods for the initial investors.
Today, a VC-backed steady growth startup is a complete oxymoron. You can’t take venture capital money and grow slow and steady. And this is also why very few startups initially take on loans while most small businesses often do.
In 2023 and 2024, the strategies are starting to converge as VC funding has, for the most part, dried up, while inflation has hit hard, and post-pandemic tools and methods are making it easier to start a business without requiring a lot of those initial high-growth startup costs, like physical space or local hiring or expensive foundational technology.
As a 25-year entrepreneur who has seen success and failure with both high-growth and steady-growth ventures, the lines between the two have always been blurry. But in the general startup universe, more founders are starting to catch on.
The Milestones Are the Major Difference
High-growth strategies are also what I call raise-rinse-repeat startup investment. To simplify, the major difference between high-growth and steady-growth is that the milestones to reach a next level of high growth are farther apart and harder to reach than they are with steady growth.
Thus, a startup needs more fuel to reach them than what may be available from revenue, for a longer period of time.
A couple of qualifiers:
- A billion-dollar goal can be reached using either strategy. High growth does not give you a better chance at reaching your billion-dollar goal, just a shorter, riskier timeline.
- Some business ideas require a large amount of startup capital just to exist. Spiffy (mobile vehicle care and maintenance, my former day job) is such an example, where the vans and the equipment and the software development required a massive initial outlay before the first vehicle could be serviced. Those are exceptions that will almost always require VC investment.
Steady growth is the strategy of using the cash you have on hand to achieve your next milestone with room to operate at the new level while also chasing the next new level.
A simple way to think about this is that using a steady-growth strategy, it may take months to hire your next employee, while using a high-growth strategy and raising a seed round allows you to bring on 10 people immediately.
However, in steady growth, that next employee only has to add enough revenue to get you to the next next employee, plus a little more. In high growth, those 10 initial employees have to get you to the revenue that will prove a valuation that will allow for a larger raise that will let you hire 20 more people. Rinse and repeat.
Again, not saying one is right or one is wrong, but they are indeed different and require different styles of execution.
Why Founders Should Consider Steady Growth
As recently as five years ago, I’d advise most startups to give high growth a shot, but only if they see a clear path to their next-growth level, as well as a less-clear path to a few levels after that, and following a high-growth strategy, raising money and going for what you believe to be the achievable billion-dollar business is the best path forward.
But like I said earlier, those lines have blurred dramatically over the last five years. It’s become a decision less about the need for capital, and more about how much capital is needed and when.
Most startups don’t need the latest generational wave of foundational technology to get themselves to a respectable level of success.
One of the things my colleagues and I keep talking about is the fact that with all this investor attention going into AI — the supposed next generational wave of technology advancement — a lot of business models and even business tools are being overlooked.
Most startups don’t need the latest generational wave of foundational technology advancement to get themselves to a respectable level of success. There is plenty of old technology that is perfectly viable to suit business cases that are being ignored right now because all the AI investment money is going into building better chatbots and self-driving cars.
That means with flashy new AI taking all the oxygen and investor energy out of the room, a lot of high-growth concepts, tools and even business models can be had at a discount. So a small-business-style startup can use these high-growth tools and methods to accomplish a lot of the same results for far less cost — or far less investment needed.
That changes my outlook a bit. I’d still say wait until you're absolutely sure you need the investment, but now I’d say make sure you don’t sit on your hands either. Use the aspects of a high-growth strategy —software, automation, digital marketing tools, remote meetings, all of that stuff — to plot out milestones that are farther apart but don’t need all that outside investment to reach.
At this point in time, I think it’s much easier to take that approach starting from a point of steady-growth strategy than it would be having to deal with all the unwelcome demands of a high-growth strategy plus VC investment.
