Have you ever seen a business plan with hockey stick revenue projections? It’s common for VCs to receive business plans showing sales growing from 0 to $100m in the first 5 years of a company’s life.
In fact, growth conversations between VCs and management teams often cause angst. One of the reasons is that people from both groups tend to have unsubstantiated beliefs about how long it takes to build an important company.
Maybe these conversations would be easier if we simply knew how long it takes to build a successful company?
The answer is shown in the visualization. The study is based on a large sample of companies, specifically the top 100 publically traded software companies. We analyzed the SEC filings for every company. All of the sales numbers have been inflation adjusted, so we can compare the performance of a company founded in the 80’s (e.g., Adobe) to one founded a few years ago (e.g., Salesforce.com).
The data are packed with interesting stories. For instance:
Most successful technology companies aren’t rocket ships.
Only 28% of the nation’s most successful public software empires were rocketships. I’ve defined a rocket ship as a company that reached $50 million in annual sales in 6 years or less (this is the type of growth that typically appears in VC-funded business plans). A hot shot reaches $50m in 7 to 12 years. A slow burner takes 13 years or more. Interestingly, 50% of these companies took 9 or more years to reach $50m in revenue.
The fastest rocket ship of today’s software industry was Novell.
Novell (NASD: NOVL) was one impressive company. It took only three years to reach $50 million after it was founded in 1983. In 2008 it still pulled in almost $1 billion in revenue. You’ll recognize the names of a few of the other genuine rocket ships from various decades: Adobe, Autodesk, Electronic Arts, Interwoven, McAfee, Salesforce, Sybase, Synopsys, and Verisign.
Microsoft and Oracle weren’t rocket ships.
Who would have thought? They are two of the most valuable companies ever founded, in any industry, in any country. Microsoft took 8 years to reach $50 million in sales; Oracle took 10.
It makes you wonder: Is it wise to prepare a business plan featuring steep hockey stick sales projections?