Does your tech company grow between 1 and 5 percent on average every year?
While many entrepreneurs may dream about such annual growth figures, this accounts for very little in the tech industry. This only means that there’s plenty of untapped potential out there for your company.
In Silicon Valley they even have a term for this: Walking Dead status. In 2018, the average growth rate in the tech industry was 12.59%, according to a study by CSI Market.
Impressed? In 2017, Deloitte calculated that the 50 fastest-growing Dutch tech companies posted 681% growth in the years between 2013 and 2016. These are very promising times.
Are you happy with your current growth rate? Then stop reading and enjoy your results.
Are you not really satisfied with your current growth figures or your Walking Dead status? Then read on!
The first step out of the Valley of Death
Many entrepreneurs have no idea that their company has become one of the industry’s Walking Dead. The startup or scale-up mindset has gradually made way for a culture in which people work on autopilot. In many cases, they don’t mind either.
Why make an effort if you can still make a good living by doing this? Take Oracle. In August 2019, Het Financieele Dagblad published an article about this tech company titled:
“Oracle rent al 8 jaar om stil te blijven staan” (Oracle has been running for eight years but is essentially running in place).
Despite 53 acquisitions and 100,000 new customers, the company posted the same turnover and profit for the past ten years. While this in itself is pretty phenomenal, the article makes the comparison with Salesforce. Whereas Oracle doubled in value during the past years, Salesforce succeeded in multiplying its value sixfold during the same period.
The company posted 25.29% growth in just one year. Oracle is the poster child of the Walking Dead. It’s not struggling, but at the same time it’s not capable of capitalizing on the prevailing prosperity in the tech industry. How can Oracle break out of this circle of inertia?
Explosive growth of Annual Recurring Revenue
Silicon Valley expert Jacco van der Kooij, the owner of Winning By Design, has the answer. It’s all about creating a Window of Opportunity (illustration 1). In essence, this means that entrepreneurs should define a growth plan that will pave the way for the explosive growth of your Annual Recurring Revenue (ARR).
It’s crucial that you think about such themes as your proposition, go-to-market strategy and delivery model in this context. Scalability is the magic word in all cases.
So how to achieve that hockey stick graph?
In an ideal situation you can create a hockey stick without additional investments, but this happens very rarely. Scaling without any major investments is realistic based on a smart partner model, an improved go-to-market, or a simplified delivery model.
The growth figures of Salesforce (chart 2) are a classic example of a company that succeeded in achieving a hockey stick graph. While chart 2 paints a different picture, in most cases companies will have to invest to effectively achieve the intended growth.
That’s when you start to distinguish the hockey stick in the graph, starting with a small downward trend. The principle is very simple: your turnover and profit will initially take a small dip and will then grow at breakneck pace.
Hiring additional employees, simplifying your technological platform and/or changing your sales model are all examples of costs that culminate in this dip. The growth of your ARR will then pave the way for a fast-growing turnover and profit.
From Walking Dead status to a hockey stick graph
In 2017, I helped a Dutch software company narrowly escape Walking Dead status as its marketing director. To pull this off, we had to prepare the software for the cloud and mobile devices.
The software was installed on-premise, which is not scalable in the long term. The revenue model was also overhauled. We switched from a one-off revenue and a 10% Service & Maintenance contract to a licensing model, based on the number of users.
Whereas we previously could invoice 100K in advance, we now found ourselves invoicing approx. 5K every month. As a result, revenue dropped and our expenditure increased because of our investments in the software.
The downward trend in the hockey stick was there for all to see. Our ARR grew rapidly thanks to the new revenue model. While we previously earned a paltry 10K in ARR, in the form of S&M, this increased to 60K under the new model. By the third year, the steady upward trend of the hockey stick was visible in the graph.
The pitfall of explosive growth
If you’re a startup on your way to becoming a scale-up, then this often happens gradually. Employees who have been with the company since the start will grow in step with the organization’s ambitions and growth path.
Make sure to actively involve them in the execution of your growth plans. Don’t devise these plans in a back room with a management team. Make sure your employees are part of the process. Do you have a Walking Dead organization on your hands? Then involving them in the process often won’t be sufficient. In many cases, that honest discussion is inevitable.
Growth starting from intrinsic motivation
The desire to grow is inextricably linked to a strong intrinsic motivation. It demands a winner’s mentality, and means you won’t settle for second best.
To achieve growth, you will sometimes have to have that honest discussion. It means retraining, transferring or in the worst case scenario letting people go who have been working for your company from the start.
They may have fallen victim to the mañana culture precisely because they have been working for your company for so long. They take a Spanish approach to their job. A laid-back approach, because there’s always tomorrow to take care of stuff.
Can this attitude cause problems in the long term? Is someone unable to keep up with the pace? Is a growth spurt no longer on the cards? However harsh this may sound, you need to let this person go. Do this in the most human way possible.
Help your employee understand the reason behind the decision. Agree on a realistic notice period or help them find a new job. Take plenty of time for this.
There will be cases where you hesitate. You need to talk to them too and have a frank discussion with them about whether they are capable of keeping up and want to be part of the new strategy. It’s up to them. Set targets during this discussion and follow your gut instinct. Still have your doubts?
Then it’s a NO. If you skip this step, you’ll have a real problem at a later stage. The mañana crew will hinder your growth and won’t be able to keep up with the new pace.