In his 2012 essay “Startup = Growth,” Paul Graham talks about a 5% to 7% weekly growth rate as table stakes for startup success. If you’re growing 10%, he says, you’re doing “exceptionally well.”
What’s stayed with me most from that essay is the way that Graham, a cofounder of the accelerator Y Combinator, articulates how gunning for 10% can create what he calls “evolutionary pressure” that forces founders to discover what the startup is for.
“If you start out with some initial plan and modify it as necessary,” he writes, “you may end up with a quite different company than you meant to start. But anything that grows consistently at 10% a week is almost certainly a better idea than you started with.”
So yes, growth is good. But how do you get confident in your startup’s potential when you’re not yet growing—and how can you instill that confidence in potential investors? At Pie, my current startup, we didn’t start growing until our fourth year. We wouldn’t have made it that far were it not for raising more and more capital based on the promise that we would one day be worthy of those investments.
So what indicates promise? Two things: the locomotion of the founding team, and the rate of iteration. Angela Duckworth, in her book Grit: The Power of Passion and Perseverance, writes: “Enthusiasm is common. Endurance is rare.” All startup teams are enthusiastic at the beginning. What’s harder is figuring out how to endure once the initial enthusiasm—and startup capital—has evaporated.
One litmus test for this is simple: Does the team like being together? Is there enough camaraderie to offset the challenges of building something that isn’t growing? And is the camaraderie even enhanced because of those challenges?
After all, working on something that is sometimes not working is the nature of a startup.
I’d argue that the combination of possessing grit and having fun creates a special something: locomotion. It’s a train with momentum. A team that feels like it’s winning even before it’s winning.
Locomotion leads to a second indicator of success. As Sam Altman tweeted in 2018, “The #1 predictor of success for a very young startup: rate of iteration.”
Sometimes iteration is in the product. Sometimes it’s in who you’re seeking to reach with that product. Still other times it’s iteration in who is on the team. There may be a cofounder split. Early team members may churn.
Iteration matters because time and treasure are scarce. Teams that iterate quickly are learning quickly. And learning quickly with a gun to your head is how you maximize the probability of getting to 5% to 10% weekly growth.
A rapid rate of iteration also reveals a set of essential ingredients undergirding the team’s character, which can themselves be positive indicators: the courage to make difficult decisions on strategy and team, the intellectual honesty of a scientific approach to finding product-market fit, and the self-awareness to quickly figure out what’s working and what’s not.
Locomotion and iteration are the startup equivalent of the chicken and the egg. I’m not sure which one comes first—but both are required to keep going.
This article appears in the December 2024/January 2025 issue of Coins2Day with the headline “What are the best metrics for measuring a startup’s potential?”
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