The Elephant in the Room: The Myth of Exponential Hypergrowth and the On Deck Series A Memo

The Elephant in the Room: The Myth of Exponential Hypergrowth and the On Deck Series A Memo

In the world of startups and high-growth companies, there is a common misconception about exponential hypergrowth. Many believe that companies can continue growing exponentially without any limitations. However, this belief is flawed and fails to consider the natural decline of growth as a percentage with scale. This phenomenon is known as Growth Decay or Growth Persistence.

The truth is, even if a company's core growth mechanism follows an exponential model, it cannot sustain exponential growth indefinitely. Eventually, it runs out of market to penetrate and faces the challenge of reaching a fully-saturated market, also known as the "carrying capacity." This concept is similar to the logistic curve, which starts as exponential growth but eventually flattens into linear growth as it approaches its limits.

It is important to understand that exponential growth is not a sustainable long-term strategy for companies. Instead, companies should focus on winning market share in their early stages, creating what is known as an Elephant Curve. This curve represents the growth of market share and highlights the importance of capturing a significant portion of the market early on.

However, as the product matures, companies need to adapt and find new ways to continue growing. This often involves developing wholly new products or significant updates that address new markets. It is crucial to recognize that word-of-mouth-driven growth is more effective and cost-efficient than marketing-driven growth. Therefore, companies should invest time and effort into building word-of-mouth into their product rather than relying solely on marketing.

The importance of community and meaningful connections cannot be overstated in the modern world. Organized religion has been on the decline, and people are searching for alternative sources of meaning, identity, and community. Online communities, such as those facilitated by On Deck, have become a popular solution for many individuals. On Deck recognizes this need and provides programs that meet the demand for community and connection.

On Deck's approach is unique in that it combines community with curriculum, addressing the shortcomings of the first generation of "ed-tech" platforms. By bundling community and curriculum, On Deck creates a rewarding and personal peer-to-peer learning experience. This approach has been successful, as evidenced by the strong "repeat buying" behavior of their top fellows.

The success of On Deck can be attributed to several macro waves or tailwinds. The decline of traditional higher education and the rise of ed-tech 2.0 have created an opportunity for platforms like On Deck to thrive. Additionally, the shift to distributed living and working, accelerated by the COVID-19 pandemic, has further fueled the demand for online communities and remote learning opportunities.

In the long run, utility to the userbase is the most stable and long-term competitive advantage a company can have. However, achieving this level of utility often requires reaching a certain scale. The old approach of selling or licensing technology to incumbents is being replaced by the full-stack approach of building end-to-end products or services that bypass incumbents and competitors.

The impact of COVID-19 has been significant, particularly in the realm of remote work. The pandemic has forced companies to embrace remote work, and it is likely that a significant portion of the workforce will continue to work remotely even after the pandemic subsides. This shift in work dynamics has made location less important in hiring, particularly in the tech industry.

In conclusion, the myth of exponential hypergrowth needs to be debunked. Companies cannot sustain exponential growth indefinitely and must recognize the limitations imposed by market saturation. Instead, companies should focus on winning market share in their early stages and adapt as the product matures. Building word-of-mouth into the product and fostering meaningful connections within communities are essential strategies for sustainable growth. Additionally, recognizing and capitalizing on macro waves and tailwinds can propel companies like On Deck to success.

Three actionable advice:

1. Focus on building word-of-mouth into your product to drive organic growth and reduce reliance on expensive marketing efforts.
2. Adapt and evolve as your product matures by developing new products or significant updates to address new markets and customer needs.
3. Embrace the power of community and meaningful connections to create a loyal userbase and provide a unique value proposition.