The Hockey Stick Principles, Flatiron Books

Think “hockey stick growth” is impossible because your company isn’t a high-tech start-up? Think again, says the author of a new book on navigating high-growth success.

Innovative new businesses that succeed in many other industries also follow the pattern of “hockey stick growth” – where revenue shoots up sharply in a curve shaped like a hockey stick, according to Bobby Martin, author of The Hockey Stick Principles: The Four Key Stages to Entrepreneurial Success. In fact, when Martin plotted revenue growth curves for the first seven years after launch of 172 successful start-ups, which included Web and non-Web businesses, all but 11 of the companies experienced hockey-stick growth.

“Aiming for hockey-stick growth, while being aware of the predictable stages of growth, is exactly what successful entrepreneurs should do,” writes Martin, who has launched two successful companies (one of which he sold to Dun & Bradstreet for $26 million in 2007), is an angel investor and an advisor to several innovative companies.

The challenge for many, Martin said in a recent interview about his book, is navigating that growth curve’s four major stages, which he describes as:

• Tinkering – This stage starts when founders “start to take action to examine the idea more seriously, and it ends when they fully commit to developing the business.” It usually occurs while the founder continues to work a day job.

• The blade years – This stage, typically lasting three or four years, is when founders have committed full-time to the venture, but revenue looks like the blade part of a hockey stick — extremely low, if there is any at all.

• The growth inflection point – The stage where the business model is honed and revenue turns up sharply, and pressure to scale up quickly mounts.

• Surging growth – The stage featuring accelerated growth and complexities associated with leading and managing the enterprise.

While each stage has its own set of challenges for founders, it is the blade years, in particular, that can represent a firm’s make-or-break years, Martin says. “It’s an interesting stage, because it’s the hardest type psychologically and physically, and it’s also when the most important work is being done for the business,” he says. “It’s also a time when the founder him or herself is doing a lot of the heavy lifting and handling important aspects of the business – selling, product development, customer service – and they’re also learning like crazy.”

Here are three things founders should keep in mind about the blade years, according to Martin:

Plan to bootstrap for longer than you think you’ll need to, and expect to earn little to nothing in the meantime. “Here’s where a lot of people go wrong, to my mind: Thinking they have to bootstrap for a year, and then they’ll be kind of out of the woods – that they’ll have enough revenue after a year or two to pay themselves a decent salary and enough to expand their business,” he says. “That doesn’t happen in one or two years but instead in three or four.”

To address that difference, many owners go out and try to raise capital, but Martin says it’s too early in the life of the firm at that point. He says most of the time, businesses need to gut it out and wait until after they’ve hit the growth inflection point to raise capital. In the meantime, many founders pay themselves very little, if anything. “One of the important truths of achieving start-up success is that being willing to continue to put a vast majority of earnings and capital raised into fueling growth is often the differentiator in getting your business to take off,” he writes in the book.

Smart founders are continuously tweaking the business model, particularly during the blade years. Martin notes that there are many different business models, and it can take some time to figure out the best marketing strategies, the best people to partner with and the best way to sell the product or service, for example. For example, Sageworks Chairman and co-founder Brian Hamilton, who was interviewed for the book, first tried to sell the company’s financial analysis software to small business owners to help them learn more about their businesses. He later realized the company needed to pivot, Martin notes, and Sageworks began selling to accountants (now a core market). Martin serves on Sageworks’ board of advisors.

Successful start-up founders spend the blade years doing whatever they can to make the early adopters or customers happy. “Founders are working in the blade years on building a remarkable brand by learning directly from their customers,” Martin says. This means instead of spending all of their time trying to secure additional customers, the founder is spending time with existing customers, “making them thoroughly happy.” These are the efforts that help build remarkable brands.

“By building a strong brand identity and nurturing your customer community, if and when you do decide to launch a major marketing campaign, you will be much better equipped to make sure it speaks in your company’s voice,” Martin writes.

Sageworks, a financial information company, collects and analyzes data on the performance of privately held companies and provides accounting, financial analysis, and risk management solutions.