Softwareunternehmen und Unternehmen für Online-Services können schnell Milliarden-Dollar-Giganten werden, aber das Rezept dafür ist recht exklusiv. McKinsey hat auf Basis einer Langzeitstudie drei wichtige Rezept-Bestandteile herausgefunden:
Software and online services are in a period of dizzying growth. Year-old companies are turning down billion-dollar buyouts in the hopes of multibillions in a few months. But we have seen similar industry phases before, and they have often ended with growth and valuations fizzling out. The industry’s booms and busts make growth, an essential ingredient in value creation, difficult to understand. To date, little empirical work has been done on the importance of revenue growth for software and Internet-services companies or how to find new sources of growth when old ones run out.
In our new research, we analyzed the life cycles of about 3,000 software and online-services companies from around the globe between 1980 and 2012. We also surveyed executives representing more than 70 companies and developed detailed case studies of companies that grew quickly and others whose growth stalled. The research produced three main findings.
Growth trumps all. Three pieces of evidence attest to the paramount importance of growth. First, growth yields greater returns. High-growth companies offer a return to shareholders five times greater than medium-growth companies. Second, growth predicts long-term success. “Supergrowers”—companies whose growth was greater than 60 percent when they reached $100 million in revenues—were eight times more likely to reach $1 billion in revenues than those growing less than 20 percent. Additionally, growth matters more than margin or cost structure. Increases in revenue growth rates drive twice as much market-capitalization gain as margin improvements for companies with less than $4 billion in revenues. Further, we observed no correlation between cost structure and growth rates.
Sustaining growth is really hard. Two facts emerged from the research. Companies have only a small probability of making it big. Just 28 percent of the software and Internet-services companies in our database reached $100 million in revenue, and 3 percent reached $1 billion. Of the approximately 3,000 companies we analyzed, only 17 achieved $4 billion in revenue as independent companies. Moreover, success is fleeting. Approximately 85 percent of supergrowers were unable to maintain their growth rates, and once lost, less than a quarter were able to recapture them. Those companies that did regain their historical growth rate had market capitalizations 53 percent lower than those that maintained supergrowth throughout.
There is a recipe for sustained growth. While every company’s circumstances are unique, the research found four principles that are essential to sustaining growth and from which every company can benefit. First, growth happens in phases: from start-up to billion-dollar giant, growth stories typically unfold as a prelude, act one, and act two. In act one, there are five critical enablers of growth: market, monetization model, rapid adoption, stealth, and incentives. A third principle is that the drivers for growth in act two are different. Successful strategies in act two include expanding the act-one offer to new geographies or channels, extending the act-one success to a new product market, or transforming the act-one offer into a platform. Finally, successful companies master the transition from one act to the next. Pitfalls include transitioning at the wrong time and selecting the wrong strategy for the next act.
Company leaders can use these insights to understand their growth trajectory and determine whether their current products and strategy are sufficient to reach their aspiration. If not, the research can help them determine the right time to make the transition to a second act that can sustain their growth and avoid some common pitfalls that have derailed several such transitions.
Growth trumps all
It’s no secret that growth matters for any company and that software and online-services companies1 grow faster than those in other sectors. Classical corporate-finance theory holds that value creation stems from only two sources, growth and return on invested capital. In software and services, one of these matters more than the other. While returns on capital are often strong in mature companies, it is growth that matters most in the early stages of a company’s life.
But few executives can say precisely how important growth is to these companies, or how it is achieved. The rules of the road in other industries do not apply here. If a health-care company grew at 20 percent annually, its managers and investors would be happy. If a software company grows at that rate, it has a 92 percent chance of ceasing to exist within a few years. Even if a software company is growing at 60 percent annually, its chances of becoming a multibillion-dollar giant are no better than a coin flip.
In this section, we will explore the unique physics of growth in these industries—the principles that underlie revenue expansion in software and online services.
We created two samples of companies: those with between $100 million and $200 million in annual sales, and those with between $1 billion and $1.5 billion. We then divided these into three rates of annual growth: supergrowers (greater than 60 percent two-year compound annual growth rate, or CAGR, at the time they reach $100 million in sales and greater than 40 percent at $1 billion), growers (CAGR between 20 and 60 percent at $100 million and between 10 and 40 percent at $1 billion), and stallers (CAGR of less than 20 percent at the first threshold and less than 10 percent at the second). Note that these stallers underperformed only in the context of their sector; on average, they achieved growth rates that would be the envy of companies in most industries.
We found that only a small fraction were supergrowers: 10 percent and 15 percent, respectively (Exhibit 1). That’s a big drop-off from the period before they reached $100 million in sales, when 50 percent of our sample grew at more than 60 percent annually.