Growth Patterns of Technology Companies

As expansion stage venture capital investors, we at OpenView Venture Partners push our companies to pursue rapid growth. However, our push is very tempered by an equal desire for capital efficiency. In fact, what we tell our companies is “grow as fast as you can, while staying capital efficient.”

This brings up a dilemma that requires careful balance… How fast should a software company grow and how capital efficient should that growth be?

My colleague, Adam Marcus, recently sent me a link to this interesting article in the WSJ How Long Does it Take to Build a Technology Empire?

Oracle, one of the world’s largest software makers, reached $50 million in revenue in its 10th year. It took software king Microsoft Corp. eight years to hit that milestone. Yet many technology start-up business plans typically project revenue of $50 million in the first five years. The reality, according to research supplied by data visualization company Tableau Software, is that most tech giants come nowhere near those numbers in the first five years. Tableau defines “rocket ships” as companies that reach $50 million in annual sales in six years or less. Only 28% of the nation’s top software companies met this mark. 

These stats were pretty eye opening for me. What it confirms in my mind is that building a great big technology company is like running a marathon. It takes a very long time to finish, it has its ups and downs, it is painful, and at any point it seems like it’s taking forever. As any marathoner would tell you (and I’m not one!), the key to finishing a marathon is to be well prepared, to pace yourself, and to always move forward.

Now there are exceptions… Clearly the growth rates of the likes of Facebook and Groupon give hope to those that prefer running sprint races. The problem is that these companies are an incredibly small sample of the thousands of software companies that continue to plug along at the marathon pace.

In my role mentoring software CEOs, I try very hard to balance growth with capital efficiency, but it is a tricky balance. For more on this, I refer you to The VC Dilemma – Capital Efficiency or Big Big Exits.

For more on capital efficient growth, check out What is a Profitable Distribution Model and The Ideal Path to Expansion Stage Growth

What path have you chosen?