Growth Above All?
Why the growth model and short term thinking is killing the software startup ecosystem. And why there is another model.
The most common startup myth propagated by Y-Combinator (YC), one of the most influential voices in the technology startup ecosystem, is that the only way to build a successful startup is to focus on customer-driven growth. If there is one mantra, one golden rule, one cure-all, it is Growth. In the words of Paul Graham, its founder:
If you want to understand startups, understand growth. Growth drives everything in this world. Growth is why startups usually work on technology — because ideas for fast growing companies are so rare that the best way to find new ones is to discover those recently made viable by change, and technology is the best source of rapid change. Growth is why it’s a rational choice economically for so many founders to try starting a startup: growth makes the successful companies so valuable that the expected value is high even though the risk is too. Growth is why VCs want to invest in startups…
If you are a startup, who does not bow down to this altar of growth-above-all, you have a very less chance of being funded, or being accepted by your peers in the ecosystem. Shun growth, and you get shunned.
While growth is definitely great, there is this relentless focus on extremely short term growth that is problematic:
During Y Combinator we measure growth rate per week, partly because there is so little time before Demo Day, and partly because startups early on need frequent feedback from their users to tweak what they’re doing. A good growth rate during YC is 5–7% a week. If you can hit 10% a week you’re doing exceptionally well. If you can only manage 1%, it’s a sign you haven’t yet figured out what you’re doing.
If we go deeper into this hypothesis, we understand that Y-Combinator has been the most successful mentor to startups in the silicon valley and beyond and it has access to some of the smartest technology investors. They have closely seen companies like Dropbox and AirBnB, that have put growth-above-all, combined with top class execution and make it big. This seems to definitely be a repeatable model of fast growth, backed by the following underlying assumptions:
- Internet and mobile have been game changers for all industries.
- Industries that have not yet adapted to internet driven workflows and commerce, offer huge opportunities to disruptive startups.
- Companies need to find one disruptive workflow, execute fast and keep growing.
- The only validation of their effectiveness is the rate at which they keep growing.
This definitely seems like the most logical model to grow, and has now been repeated by investors all through the ecosystem.
By putting money behind this model, entrepreneurs and investors attract the best software development and design talent and focus on super fast execution, driven by founder with a single, relentless focus on growth numbers.
Long Bets and Other Models
We clearly know that the growth-above-all model works, even as we see fewer and fewer low hanging opportunities. Successful companies hit product-market fit in 6–18 months. Is there another path? What about products that take longer to build? Are people taking long bets in software anymore?
The anti-thesis to a growth driven model, is an idea driven model. In the idea model, the entrepreneur experiments on a core technology or way of working rather than work from the customer side of things. To become successful in the model, the entrepreneur requires successful market execution, but this is not the primary driver.
Examples of this model are:
- Assembly line innovation by Ford.
- Products from Apple like the Macintosh and iPhone.
- The invention of lean manufacturing by Toyota.
- The original Google Search and GMail. (Google Search was driven by a better way to rank websites, not just an insatiable desire to bring more revenue)
Infact I would argue that the most iconic and lasting products are the ones that are driven by ideas and later resulted into growing companies. Before the rise of YC, this was the best model to predict which companies would be funded, along with the execution capability of the founding team.
People are taking long bets in non software fields, that are being transformed with software like crpyto-currencies, bio engineering and food production. Software on the other hand has become stagnant like the auto industry before Elon Musk broke the shackles with Tesla, with me-too products.
I think the time for a shift in the mindset is due.
The Dark Side of Growth
Over the last few months, we have seen some of the adverse effects of this model. Fueled by advertising dollars, companies like Google and Facebook have poured resources is subjecting us to clicking and liking a certain message or product. The results have been disastrous.
- Money is driving attention, in commerce and politics.
- Companies spend billions in hacking attention and habits.
- Personal data is has become a monetisable commodity.
- Bots and memes have eclipsed intelligent, nuanced writing and arguments.
- Communities are becoming isolated and fractured.
All because 90% of Google and Facebook revenue is driven by ads and clicks.
In nature, growth at all costs results in destruction too. Insatiable economic growth is leading us towards an ecological and climate disaster. The other problem with growth thinking is that it destroys adjacent ecosystems too.
Cancer is unchecked cell growth. Mutations in genes can cause cancer by accelerating cell division rates or inhibiting normal controls on the system, such as cell cycle arrest or programmed cell death. As a mass of cancerous cells grows, it can develop into a tumor. Cancer cells can also invade neighboring tissues and sometimes even break off and travel to other parts of the body, leading to the formation of new tumors at those sites.
Over the course of human history, we have seen empires rise and perish. What has taken humanity forward are ideas. Concepts like language, script, money, social co-operation, human rights, property rights, political rights, engineering, philosophy, science have led us to where we are today. We live in an era of unprecedented freedom and prosperity, because of ideas.
Even if it is not the fashion, ideas do matter and are worth fighting for.
Rushabh is a software developer and founder of ERPNext. He usually writes about the startup experience, open source and the technologies he is working on.