Companies with an annual growth rate of 40 percent or more operate in many sectors. What do these success stories share in common?
Kaj Työppönen | Ernst & Young
While the term hypergrowth was only coined recently, it is in increasingly common use thanks to the successes of headline-stealing companies such as Internet media giant BuzzFeed and taxi-hailing app Uber.
“ The evidence suggests that not all hypergrowth companies are young or disruptive.”
Uber, founded in 2009, took just three years to reach a valuation of $18.2 billion, while Buzzfeed was founded in 2006 and currently claims 200 million monthly unique users and 6 billion content views.
These are two particularly well-publicized examples of hypergrowth companies – companies that are growing way faster than their peers – but hypergrowth is not just the preserve of the famous and the few.
There are many more hypergrowth companies operating in a wide range of sectors across the world.
Hypergrowth is defined as a compound annual growth rate of 40 percent or more, so companies with this level of growth typically double their revenues in less than two years.
Often their rapid expansion is made possible by technological advances that allow them to create new possibilities and compete on a global scale.
“Digital technology gives businesses in every region a license to disrupt, innovate, take risks and expand into new markets in a way that has never been possible in the past,” observes Uschi Schreiber, Global Vice Chair – Markets at EY.
“We live in a world where the opportunities are both borderless and boundless. Hypergrowth can be the outcome for companies that are ready to ride the wave of disruption and work hard to take advantage of those opportunities.”
Many people associate hypergrowth with young, risk-taking companies that capitalize on a gap in the market or see the potential for a new business model. Yet the evidence suggests that not all hypergrowth companies are young or disruptive.
“ Hypergrowth can be cultivated.”
The World Economic Forum recognizes the significance of hypergrowth to both the way we do business today and the way we will do it in the future. So it set out to find out how hypergrowth companies differ from other companies in the way they are led and managed, and to learn lessons from those organizations’ successes.
Our findings are published in Mastering Hypergrowth, a study of nearly 200 companies from around the world.
Perhaps the most significant of our discoveries is this: Hypergrowth is not a happy accident – it is not the outcome of people with bright ideas and positive market forces that just happen to converge at one point in time. Far from it, in fact.
Hypergrowth is actually very deliberate – it is the result of companies focusing on the priorities that will allow them to expand exponentially. In other words, hypergrowth can be cultivated.
How can companies cultivate hypergrowth?
During our research, we uncovered some important attributes that may put companies on the path to hypergrowth.
For example, we found that culturally embedded agility is a vital trait.
Hypergrowth companies recognize when they need to respond to market changes and they will do what it takes to overcome the challenges they face. This might involve restructuring the business, clarifying and highlighting its purpose and transforming its culture.
They might need to take advantage of new developments in fields such as additive manufacturing, artificial intelligence and automation, or they may benefit from innovations in the biological and physical sciences. Furthermore, the circular and sharing economies are providing a spacious arena for growth.
Beyond agility, the right business model is a key requirement for scaling.
Hypergrowth companies favor simple business models because they know that having complicated governance, operations and supply chain arrangements in place hinders their ability to act quickly and, therefore, to scale.
So what constitutes a simple business model? One popular and versatile example is matching markets with an Internet-based platform that enables buyers and sellers to meet directly.
Hypergrowth companies recognize that people are the most important driver of organizational success.
But instead of hunting down candidates with specific skillsets to fill rigidly defined vacancies in the way that other companies do, hypergrowth companies seek out individuals who are the right cultural match for their own values and purpose.
And instead of taking a competency-based approach to recruitment, they look for people with problem-solving and intercultural skills – those who are confident operating in a global environment characterized by constant and rapid change.
Regulation is a challenge for more than a third (36.7 percent) of the companies featured in our study. And it can be as much a challenge for a hypergrowth company as any other, especially in Africa, Asia and the Middle East.
Yet what distinguishes hypergrowth companies from other companies is that they just don’t let regulation happen to them; instead they actively engage with regulators to help shape regulation.
While hypergrowth is associated with technology, not all hypergrowth companies are tech start-ups. But what differentiates hypergrowth companies from slower-growing businesses is the way in which they use technology.
They see technology as an important provider of data, so they collect data and they use it to scale their businesses at a rapid rate. Having a plan for data means they have the confidence to test and trial.
In other words, they go to market with products that are good enough because they know they can use customer data to improve those products at a later date.
A company that wants to achieve hypergrowth needs to be willing to scale – and fast. Hence mergers and acquisitions and partnerships tend to be a priority for hypergrowth companies.
While hypergrowth companies may buy out competitors as an act of self-defense, they are more likely to undertake M&A because they see it as an opportunity.
Such companies might expand their market, embrace fresh talent or access crucial new technology.
Hypergrowth – the new normal
Our research suggests that hypergrowth companies often operate in a market that is in the process of being created or transformed.
Alternatively, they may have effectively created their own market by identifying a huge, undiscovered consumer appetite.
It is important to remember, however, that definitions of industries and markets may continue to change for some time if technology converges as predicted.
Also, the structural capabilities that allow for high-speed access to global markets could mean that hypergrowth becomes the standard experience for innovative companies with globally relevant products and services.
So instead of being a short-lived feature of changing times, hypergrowth may actually be here to stay as an indicator of a company’s overall significance.
You can find out more about the unique growth challenges, solutions and leadership perspectives associated with hypergrowth companies by reading our hypergrowth playbook.
This article first appeared on World Economic Forum and was republished with permission.
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