The Growth Direction Hypothesis

Sophistication is the best way to make your company grow.

Since 2014, we have seen a dramatic increase in unicorns (companies with a 1B+ valuation for investments purposes):

Usually, these valuations come from financial projections based on future sales.

This is why today the biggest trend among unicorns is:

FOCUS ON INCREASING SALES, FORGET ABOUT EVERYTHING ELSE

The problem with this principle is that it will force the company to optimize for a single KPI; the problem with the single KPI strategy is that all other KPI’s will begin a free fall, this means you will be locked in horizontal grow mode.

To be honest, horizontal growth is much easier to do, you just need money.

This is how the Growth Direction Hypothesis works:

Imagine you are a company with 50+- employees, and with yearly sales of 25m+- USD a year and about 2 years with a YoY growth rate of about 50–60%, you will be presented with a dilemma to get to the next stage of your startup:

Become sophisticated enough to be able to (Vertical Growth):

• understand your future market
• develop your customer
• scale the business around your job to be done

Or fundraise enough to be able to (Horizontal Growth):

• Expensive customer acquisition as the growth strategy
• Turn your product in a commodity powered by footprint and scale, not quality.
• Ignore metrics, focus on the YoY growth rate of sales.

Once you understand how a company is growing you can predict a couple of things:

For vertical growing companies:

• They have at least 5x bandwidth (knowledge and understanding) of their “ecosystem” in relationship to their current need.
• Their biggest asset is not how the deliver but how they craft.
• Your metrics operate as a horde.

For horizontal growing companies:

• Product is what it is, the quality will decrease (so customer service)
• Operations optimize for quick sale — new customers — short term
• It works because you are willing to lose money to “buy your sales”.

Today we are seeing how unicorns growing horizontally are either becoming too big to fail or failing because metrics don’t get better just by scale, they get better because you optimize them.

If you see the biggest tech companies in the world, there is not even one that is implementing horizontal growth; you need to understand why, growing horizontally require companies to live to fundraise, hoping to get big enough to be able to kill sophisticated ones, but this will not last long.

So be aware of what are you doing and don’t drink your own kool-aid.

• Do you have a deep understanding of your industry/product/service?
• Is your product/service used because of how good it is or because “they have to”?
• Are the customers looking for and discovering your product/service or is being forced or pushed to them?

There are no perfect companies, especially as they get bigger they got mixed answers but in early stages, you will be able to plan ahead.

Enjoy the ride!