Rule of 10: How Fast Does Your Startup Need to Grow?

When I went to visit my friend in SOMA last week, he told me that his startup had recently moved to a new office. I remember the first time I visited, the company had a few desks in a shared space with other startups.

Imagine my surprise when I walked off the elevator to see an entire floor of a building filled with employees busy going about their day. The place was bustling with activity like a grand bazaar.

When we talked more, he told me that his company had been growing 25% a quarter for the past 24 quarters and I thought to myself was “that’s pretty solid”.

Then 2 seconds later I realized that A) the company hasn’t even been around for 24 quarters and B) what he actually said was that they were growing 25% a month for the past 24 month.

I couldn’t believe my ears. I blurbed out loud, “that’s ‘holy fuck’ growth.”

You hear the phrase “killing it” everywhere in Silicon Valley — at coffee shops, on the Caltrain, and even on your digital feeds.

Translation for anyone outside of the Silicon Valley verbiage bubble, it’s a statement meant to convey how well a startup is doing and how quickly they are growing users, revenue, and/or employees.

But like most sayings in Silicon Valley, this one is overused and meaningless (read: annoying) because there’s really no generally accepted definition of what “killing it” means. What it really means is a state when a startup has found its product-market fit and is in a period of hyper growth.

Rule of 10

I define hyper growth using the Rule of 10. A startup is in hyper growth if it is:

My definition of a specific addressable market is a bottom-up analysis of the specific type of users / customers who would use the product multiplied by how much revenue you can generate per user / customer. The specific addressable market is not some gigantic number you found in an IDC or Gartner report that talks about how big the entire industry is.

Here’s the full chart of what these growth rates would imply on an annual basis:

While not every company is optimizing for growth at all times, the Rule of 10 is a good framework for thinking about any company that’s in commercialization. And startups can’t grow at the same rate forever so stage is important to understand. An seed stage startup growing at 100% a year is solid but not justification enough for a big party but Facebook today growing at 100% a year (hypothetically) would be eye popping. To be really interesting for venture capitalists who shoot for outlier outcomes, a company has to be in the ballpark of the Rule of 10 rate.

If you are an early stage company and growing at 5–7% a week, that’s still very impressive so use the Rule of 10 as a good guide but not a black and white line.

My friend’s company has been growing 25% a month for 24 months. Even if (hypothetically) the first month the company had $5,000 of revenue, it would now be on a $10.2 million run rate. That’s the power of compounding growth. Grow another 6 months, $38.8 million run rate and grow at 25% for another 12 months from today and the company will be on a $147.9 million run rate. Yeah, that’s why it’s on a “holy fuck” growth trajectory.

Hyper growth requires significant work on building a great product that people love but once you reach this threshold, all manners of options in accessing capital and further growth are at your fingertips.

If you hit the Rule of 10, instead of trying to figure out how you are going to raise money, you’ll be busier trying to dodge the money that investors will be throwing at your startup.

If your startup fits the Rule of 10, my email is Li [at] gsvam [dot] com. Wink wink.

— Li Jiang @gsvpioneer