The Elephant in the room: The myth of exponential hypergrowth

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Original Article: The Elephant in the room: The myth of exponential hypergrowth

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A startup is growing fast, the journalists marveling at its “meteoric rise.” But don’t meteors fall?

Inevitably it is breathlessly inducted into the class of “hypergrowth” companies that are “growing exponentially.” Especially when the product is “viral.” After all, if every person brings three friends, and each of those brings another three, is that not exponential?

But “exponential” is an incorrect characterization, as we’ll see in real-world data, even for hypergrowth, “viral” companies like Facebook and Slack.

This article suggests an alternate model for how fast-growing companies actually grow. Understanding the model is useful not only for predicting growth, but because understanding the foundational drivers of growth allows us to take smarter actions to create growth in our own companies.

Dispelling “exponential” #

To evaluate whether hypergrowth is properly described as “exponential,” let’s recall what that word means. Here’s an exponential curve (like \(y=2^x\)), compared to a quadratic one (like \(y=x^2\)):

In exponential growth, values grow by a multiple. For example: In year 1 you grow 10, in year 2 by 100, in year 3 by 1000—each time the amount of growth is multiplied by ten. The compounding effect of multiplication causes the numbers to grow slowly initially, then skyrocket. The compounding effect gets journalists and VCs justifiably excited.

“Compound interest is the most powerful force in the universe.”

—Albert Einstein

In quadratic growth, values grow by a adding a constant amount more each time-interval, rather than multiplying a constant amount more each time-interval. In the same example, growing in year 1 by 10, then in year 2 by 20, in year 3 by 30:

Successive values (in blue) are increasing more and more (in green). The green differences are increasing linearly: 10, 20, 30.

Growth is still accelerating, so the blue curve slopes upwards, but gently compared to exponential growth.

With these patterns in mind, let’s examine real-world data, and see whether “exponential” is the right model.

Facebook is the definition of hypergrowth—getting to $50B in revenue faster than any company in history. The product is “viral”—friends bring other friends—which...