What’s a hyper-growth startup? What makes them grow so fast? How are they funded?
In their book, The Unfair Advantage, Ash Ali and Hasan Kubba explain what hyper-growth startups are. They discuss how these businesses get started, how they’re funded, and what type of product or service they typically involve. They also provide some insight into the chances of success and what it’s like to be part of one of these businesses.
Keep reading to learn the basics of hyper-growth startups.
Hyper-growth startups almost always distribute a technology-based product or service. The focus is outpacing competitors to quickly capture as big a portion of the market as possible. As Ali and Kubba explain, costs are often very steep initially and then taper off when (and if) the business gains traction. Why? Once digital products are created, they can usually be mass produced with moderate expense.
(Shortform note: According to the World Economic Forum, startups qualify as “hyper-growth” when they maintain an average annual growth rate of at least 40% for more than one year. As Ali and Kubba mention, most hyper-growth companies launch digital products or services. Other business leaders point out that these companies also harness technology as part of their strategy to expedite rapid growth, lower costs, and keep teams connected. For example, many hyper-growth startups rely on artificial intelligence solutions to enhance customer service and streamline operations.)
Hyper-growth startups require generous funding from outside investors given their incredibly high upfront costs as well as the priority placed on accelerated growth, according to Ali and Kubba. Hyper-growth startups often remain unprofitable for a long stretch of time, sometimes losing vast sums in the push to strike it big. However, those that do succeed reap massive profits, which make the risk worthwhile for investors.
(Shortform note: As Ali and Kubba say, investors are often willing to risk their capital because they know their payoff will be huge if the company they invest in succeeds. However, investors’ high risk tolerance may be changing. Supply chain uncertainties, geopolitical conflicts, inflation, high interest rates, and uncertainty about demand are making investors more reticent about pumping money into unproven companies. Instead, they are shifting toward companies that can demonstrate current profitability, at least until conditions stabilize.)
As Ali and Kubba say, entering the arena of big money and influential investors with a hyper-growth startup can be exciting, and you can potentially reap huge financial rewards. However, very few hyper-growth startups succeed, so you’re more likely to walk away empty-handed than become a millionaire. Also, to have any chance of success, you need to focus nearly all of your time and energy on growing your business. Your work schedule will be relentless.
(Shortform note: According to research, nine out of 10 startups fail. One common reason is that founders often overestimate market demand. While initial adopters are enthusiastic, mainstream customers have needs that differ from those of the first customers, so growth slows to a grind unless the startup reengineers its product, which can be costly. Amid the relentless demands of launching a hyper-growth startup with a high chance of failure, founders often work over 80 hours per week, and the average startup CEO salary is $150,000 in 2022.)
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- The guidebook you need if you're planning to start a business
- How to find and use your unfair advantages (everybody has some)
- The steps you must take to achieve startup success