4 Paths to Startup Growth

By A.T. Gimbel

I’ve spoken with a few entrepreneurs recently about different paths to grow their business. There is no one “right” answer, but each has different implications for pace, control, and the end game. Here are several examples of different paths and their associated implications.

Lifestyle Path

For some people, taking venture money, growing the team, and going on the wild ride to IPO is not important. They have loyal customers and a product they are passionate about; growing fast is not their objective. In this model, the business has reached a point where it is profitable and annually producing enough cash for a comfortable lifestyle. There may even be a strong #2 leader who does most of the hard work on the business. While the business may be growing at a healthy pace, it is not a major acquisition candidate or ideal for venture funding. As the founder, you have total flexibility to keep the business going while also having enough time for other areas of your life (family, investing, a second business, etc.). The flexibility of time and control outweighs the flashy growth path and potential exit.

Control Path

For some entrepreneurs, they want total control of the business to make whatever decisions they want. No outside investors, no demanding board, no outside timelines. While bootstrapping may mean the business initially grows at a slower rate, the founding team still has total control to make decisions. As an example, this business may take 8-10 years to get to seven figures in revenue and an exit could be reached for eight figures, with each founder still owning a significant stake. Many of these businesses are under the radar and not generating massive hype. In the end, the ability to totally control the business outweighs the lack of notoriety and a large exit.

Growth Path

You may decide that at certain points in your business it makes sense to take some outside money to grow faster. You feel there is a market/timing opportunity to capture, and/or you have a working sales process, and just need to scale it up. You may lose some control, but investment is taken to achieve specific milestones, not necessarily to see how quickly you can get to a $1 Billion valuation. As an example, this business may take 5-7 years to get to eight figures in revenue and an exit could be in the nine figures with founders owning <10%. These businesses can be solid exits for founders and investors, but are unlikely to be unicorns.

Rocket-ship Path

Another option is to jump on the hyper-growth path. The business has shown clear Product/Market Fit in a large market, and you decide to take on multiple rounds of investment to grow faster. In each round, the additional capital invested sets a higher and higher exit bar to generate the needed returns as well as some dilution of ownership. In these businesses the goal is to grow as quickly as possible, often generate a lot of market buzz, have amazing stories and personalities, and can lead to a large exit or IPO. As an example, this business may take 4-6 years to get to 8-9 figures in revenue and an exit could be in the 9-10 figure range with founders owning <5%. The growth path, wild ride, and amazing story outweigh the outside pressures of continued growth and continually higher targets, as well as the risk of flame-out.

These examples highlight there is no one right path in all situations. Which startup growth path do you prefer? As an entrepreneur, make sure you understand the implications of whichever path you choose.