The 4 Growth Factors to Startup Success.

If you want your startup to be BIG, then you need to be in the right space. According to Reid Hoffman, there are 4 universal factors that determine if your company can become massive.

Market Size

You need to know the total addressable market. The market should be massive (billions and billions of dollars a year), and hopefully growing. But even shrinking markets can provide great opportunities — Sony has been eating a quickly growing portion of the shriniking digital camera market.

You need to understand the market value you can address this year, in 3 years, and in 5 years. However fast the market is growing, you need to grow faster or your market share is dropping. If the market is shrinking, then you need to at least hold steady — that means your market share is actually going up.

I’ve been to pitch competitions where founders screw this up. Investors always ask and they always verify. Know the numbers and understand them intimately.

Distribution

So you have a huge market, fantastic. How are you going to reach it? And you are you going to reach more and more of it FAST? Most companies strive to find product/market fit, but once you do it’s time to scale. And if you can’t scale, that’s bad. Slow to scale means your competitors have a chance to learn what works and crush you at your own game when they do the thing you didn’t.

An unserviced customer is an angry customer. Don’t give that market share away.

High Gross Margins

This should be obvious but usually isn’t. A high gross margin means that for each sale you have more money to put into building the business. It also acts as a cushion against competition. Margins are thus both offensive and defensive, with no downside.

High margins are also indicative of a fresh market. Technological changes are constantly causing new, unknown markets to exist where none existed before. If you are able to stumble onto one, then competition will be less impenetrable. But beware no competition — you’re more likely to be dealing with no market at all than something truly undiscovered.

Network Effects

Ideally, every new customer increases the value of the product to subsequent customers. The obvious models for this are social networks, but not always. Any company that derives critical insights from AI or even good A/B testing will be able to further refine their product with additional customer data. Those improvements in turn enhance the experience of future customers and strengthen brand dominance. Hoffman describes multiple models, it’s worth analyzing which of those could be applied to your startup. If none, then you should immediately consider finding a way to fix it.

Conclusion

If your company has all 4 growth factors lined up, get ready to go off like a rocket. If not, then fix it ASAP! Find the people you need, get help, and figure out a way to turn your company into a rocket ship.

You can get Reid Hoffman’s book here. It’s worth it.

About Brenn

I am a digital nomad and international entrepreneur. I currently live on a beach in Asia, loving every moment. Some of the links in this post are Amazon affiliate links, but everything I link to is something I’ve bought, enjoyed, and strongly recommend.