Hypergrowth can make your business. It can also shatter your company.
Defined by the World Economic Forum as the phase of startup expansion where a company maintains a compound annual growth rate of at least 40% for more than a year, hypergrowth is a much-sought-after yet dizzying stage of expansion that many young companies, markets, and industries hope to experience at some point.
“It’s where the winners get sorted from the losers,” Harvard Business Review notes, adding that the period is usually so rapid, “it’s over almost before you know it.”
Growing at such a pace requires exceptional sales management, planning, and execution. Without those processes in place, deals slip, customers grow frustrated, and that fast growth can lead to a hard crash.
A data-driven approach, relying on accurate and up-to-the-minute information, becomes absolutely critical. And you need to make sure you’re focusing on the right metrics.
For example, many companies hoping to enter a hypergrowth environment zero in on time to first logo—the amount of time it takes for them to snap up a new customer. But I’d argue that average sales cycle length is more important, as are your win and conversion rates.
Focus on average sales cycle
Your average sales cycle indicates how long it takes for an opportunity to move through your sales process from start to finish, ending at a fully executed deal. In hypergrowth, that time should be as short as possible, ideally less than 30 days. Closing deals that fast means you’ll achieve a high volume of new deals, and can reach the kind of exponential revenue growth you seek.
Logos, logos, logos
Pursuing hypergrowth is all about the land grab. You want to sign as many new customers as possible in the shortest amount of time. As HBR puts it: “You have to focus on capturing as much of the market as possible.”
That first year is all about landing the logos. That challenge, for a company smartly focused on key analytics, is that how many logos to land, how fast, is a difficult number to quantify since it can vary so much among industries and go-to-market efforts. Generally, if there is product market fit, the goal is to close them at any cost—even if doing so is almost unprofitable.
The second year is all about net dollar retention. Once you've landed the customer, you can shift your focus to keeping and expanding that customer. Even if one sales team uses your product in that initial deal, that's fine—you’ll have opportunities to grow and upsell that customer down the road.
Monitor your win and conversion rates
The percentage of opportunities that you turn into signed deals within a specific time period, otherwise known as your win rate, is another critical metric to watch as you strive for, or engage with, hypergrowth.
Let’s say you close 50 deals this quarter for a win rate of 10%. Next quarter, your win rate is 5%, and then it falls to 1%. You’re trending in the wrong direction. This means you’re likely not conducting the appropriate due diligence early in your pipeline creation to uncover and pursue the best quality deals. You’ll want to tweak that process, and look for any factors that may influence your reps’ abilities to close deals.
Your conversion rate—the number of qualified leads that result in closed-won deals—is another key stat to monitor. By measuring how well your reps convert leads to new logos can help you align your sales and marketing teams, improving the quality of leads and setting yourself up for prolonged customer retention.
Check your pipeline
Unsure about what kind of pipeline coverage you’ll need? Many companies follow the 3X rule, striving for three times as many deals in the pipeline as their revenue targets indicate. For example, if your revenue target is $500,000 for the quarter, and you have $500,000 in your pipeline for that quarter, you’d have 1X pipeline coverage. If you had a $1.5 million pipeline, you’d have 3X coverage.
But the 3X rule isn’t a one-size-fits-all solution for your pipeline coverage ratio. You need to consider factors such as
- Your product
- Your business segment
- Your average sales cycle length
Track your ARPU
Your average revenue per user, also known as ARPU, is another key metric to track for hypergrowth. A high ARPU means you’re locking in customers as close to your product’s list price as possible. That, of course, is the ideal scenario. And not just because of the upfront revenue.
Every time you offer a discount, with the expectation of upselling or cross-selling that customer in the future, you’re also setting your customer’s expectation at that lower amount.
Let’s say one team at Company A signs a contract with a 25% discount. Now, other teams at Company A will expect the same price too. During any period of growth, but particularly for hypergrowth, expanding with existing clients becomes a key target. But if you’ve already offered one team a discount, you’ve set discount expectations with any future teams at Company A, too.
Set price expectations too low, and your revenue won’t grow as robustly as you need.
Good leadership matters
Leadership and management challenges ranked tops on the list of issues that U.S hypergrowth companies grapple with, according to research by the World Economic Forum. Globally, more than 55% of companies experienced talent challenges, whether in a hypergrowth phase or not.
Leading through hypergrowth requires agility, and the ability to face challenges head-on and with confidence. Doing so provides guidance and inspiration for the team, but also attracts the best talent in the first place.
In fact, a recent piece in Forbes highlights the importance of keeping your employees motivated during hypergrowth.
Hypergrowth firms may be tempted by a hiring binge, snapping up new sales team members. While this may make sense in the longer term, many companies don’t factor in ramp-up time for these new hires. After all, reps won’t be signing new deals on day one.
“It’s important that you know how long it takes a new hire to consistently reach full productivity so that you can account for their cash negative time period,” Karen Rhorer, head of customer success and sales strategy at Atrium, tells First Round Review. “Their ramp is dependent on what your average sales cycle looks like. If it’s four months, then it’s going to take a new AE at least that long to ramp.”
The key to onboarding staff quickly when a company sees hypergrowth, as well as supporting management, is making sure everyone has the tools they need to do their best work. That means fully assessing your tech stack to ensure everyone works off the same play book and isn’t wasting time creating outdated spreadsheets, and that the tools you do have support the right metrics you need.
Interested to learn how Clari supports hypergrowth companies? Book a demo today.