Startup = Growth

(Paul Graham, September 2012)

A startup is a company designed for rapid growth. Not every new business is inherently a startup. Startups don’t necessarily have to focus on technology, seek venture capital funding, or plan for an exit strategy. The only thing that truly matters is growth—everything else stems from it.

Every year, millions of businesses are created worldwide, but only a small fraction can be classified as startups. For example, a barbershop cannot be considered a startup, whereas a search engine like Google can.

If all businesses were the same and some just grew faster due to luck or the efforts of their founders, there would be no need for the distinct term “startup.” The DNA of startups is fundamentally different from other businesses. Google is not just a more successful barbershop; it was fundamentally different from the outset.

What Does It Take to Build a High-Growth Startup?
Two essential elements are required to build a fast-growing company:

Creating a product that a large number of users need.
The ability to attract those users effectively.
What Growth Rate Defines a Startup?
There is no precise answer to how fast a company must grow to be considered a startup. However, successful startups typically go through three stages of growth:

Early stage: Little to no growth as the product is developed.
Rapid growth: Once a valuable product is created and user acquisition is optimized, growth accelerates rapidly.
Mature stage: Growth slows down as the market reaches saturation and internal company limits are encountered.
For startup founders, the most important metric to track should be growth rate. Without understanding it, they cannot determine whether their efforts are yielding positive results.

Most successful founders can precisely state their weekly growth rate in terms of new users. The absolute number of new users is less important than the percentage growth relative to the current user base.

At Y Combinator, startups measure their growth on a weekly basis. A healthy growth rate is considered to be 5-7% per week, and if a startup is growing at 10% per week, it is an exceptional indicator. On the other hand, if a startup grows by only 1% per week, it suggests a lack of direction or inefficiency.

Key Growth Metrics
The best measure of growth for a startup is revenue, followed by the number of active users.

For example, if a startup grows at 1% per week, it will scale 1.7x per year, whereas a 5% weekly growth rate translates to 12.6x annual growth. A company earning $1,000 per month growing at 1% per week would reach only $7,900 per month after four years—less than the average salary of a Silicon Valley developer. However, if it grows at 5% per week, its monthly revenue could reach $25 million in the same period.

The Impact of Growth Rate
Even small changes in growth rate can lead to massive differences in outcomes. This is why the term “startup” exists and why startups pursue strategies such as attracting investments and planning acquisitions by larger companies. Ironically, this same focus on rapid growth is also the reason why many startups fail.