A popular topic in entrepreneurship these days is the concept of ‘scaling’ or how to substantially grow your business. Many articles are being written about a the ‘hockey stick growth’ phase (Recent Forbes blog post). The hockey stick is an important phase that can elevate a firm or in many cases, destroy it, depending on how management handles the growth spurt. With that said, there are some important caveats to many of the hockey stick models that different writers address.
- The timing is hard to predict. In most models presented, it shows the scaling phase as pretty smooth and sequential. However, in real life the timing of when it occurs and how long it will last is very difficult to predict. We like to show that smooth S-curve growth rate but rarely does this happen.
- False Signals – as Geoffrey Moore presented in Crossing the Chasm, the market place may send false signals about if the hockey stick growth is really occurring. Moore noted that companies may get false impressions from the early adopters or tech enthusiast segments of the market as the early excitement after a new product or service is launched may not transfer to the middle majority.
- Hard to estimate the market or growth rates. Again, we tend to show a smooth S-curve growth rate when the hockey stick phase begins. On paper, it looks rather simple to examine the rate of change in the slope and measure the growth rate of the sales. However, in reality, they may be ‘fits and starts’ where exponential growth occurs for a month or so, slows down and picks up again.
- If the Hockey Stick is really happening. It will attract new attackers quickly. So what looks like a smooth path may change dramatically as competitors react and compete directly, usually dropping prices or some other steps to gain share.
Why is this important to understand? It’s important for entrepreneurs to be cautious when the hockey stick growth phase occurs. Depending on the type of product or service offered (for example, if it’s software program, scaling will be easier and less expensive), it’s key to remain lean and nimble ready to adapt as necessary. Usually, it’s best to outsource as much as possible to avoid the heavy fixed investment that’s needed to support the sales. You want to be in a position to unwind as quickly as you build up your infrastructure unless you realize that the growth is here to stay and greater infrastructure will be needed to support future products, etc.