What is the hockey stick growth in business?

Hockey stick growth is a term businesses use to describe rapid revenue growth. It is a sudden increase in business growth after an inflection point is reached or discovered. A growth inflection point often occurs when a business reaches a pivotal moment in its company lifecycle concerning size, customer base, revenue, or even outside regulation. Once this turning point becomes apparent, the business sees rapid or exponential growth, known as the “Hockey Stick Effect.” 

The sudden acceleration of business usually results from investments made earlier within marketing efforts, product development, technology, or customer acquisition. Reaching a hockey stick or becoming a hockey stick company warrants celebration, as companies often see more sales than they can fulfill during stages of astronomical growth. Delivering a "Hockey stick" is merely a way of stating that things are going very well.

What is the hockey stick effect?

Companies that experience a hockey stick growth chart trajectory typically share some common characteristics. Like,

• They often have a unique and innovative product offering and a strong marketing strategy that emphasizes the value of their product to those in need.
• Additionally, hockey stick growth chart companies tend to have a well-defined customer base or target market, with a clear understanding of the user’s needs and how their product fulfills them. 
• They have found a scalable traction channel where they can dial up marketing simply by flipping a switch.
• Hockey Stick companies are often (but not always) well-funded, as coping with such growth can create significant lost opportunities if clients are turned down due to too much business.

History of the word - when did it start?

The term Hockey stick growth was first used in the early 2000s. At that time, this term was used to describe the exponential revenue growth pattern of the companies. The hockey stick is derived from a graphical representation of growth that resembles to shape of a hockey stick. The shape appears as a flat curve that starts rising sharply.  

By now, this term is used to represent an exponential growth curve of an object or system, so it is not just limited to financial metrics. The first-time hockey stick curve was used in 1950 by Dr. Edward Lorenz. He used data points to represent a change in weather. By the late 1990s, hockey stick charts became popular and adapted the business idea to represent sudden changes in trends.  

Examples of infliction points that caused hockey stick growth to companies

You will see a full list of successful companies that achieved a hockey stick chart by gaining rapid growth. However, if I have to narrow down the examples, you will notice the following companies:

1. Amazon:

Amazon is an excellent example of hockey stick growth. It started as an online book retailer but soon ventured into selling other products such as electronics, apparel, furniture, and much more. This created a massive demand for their products which resulted in hockey stick growth.

2. Apple:

Apple was one of the first companies to capitalize on the smartphone revolution. Its devices, the iPod and iPhone, became a massive success and its stocks skyrocketed following that growth inflection point. This is a perfect example, as the number of users and sales increased rapidly, resulting in a textbook hockey stick graph.

3. Google:

Google is another example of hockey stick growth. It started as a search engine without ads. Still, it gradually became an online advertising giant as it realized that search queries could be divided into intent and requests for related products. And then, Google's advertising products were born, marking a significant inflection point for Google. Its Adsense and Adwords products helped it generate huge revenues, resulting in hockey stick growth.

4. Facebook:

Facebook is also a great example of hockey stick growth. It was initially just a website for college students but soon surpassed all expectations and became the largest social media platform in the world. Its early first growth was attributed to sharing photos and relationship information, as Facebook realized college students loved to share and interact with these pieces of information. Rolling out these features quickly resulted in explosive growth among the target audience, and its growing user base soon formed a hockey stick curve.

5. Netflix:

Netflix attained a hockey stick growth model too. After introducing its streaming service in 2007, it soon became one of the most popular online streaming services worldwide. With its vast library of TV shows, movies, and documentaries, it is no wonder that Netflix achieved hockey stick growth, as it succeeded in bringing digital on-demand streaming to the masses before any other company.

As seen from these examples, hockey stick growth is a powerful indicator that a company is doing the right things, as it's something most companies aspire to do but few achieve. The potential rewards can be upwards of generational wealth if this kind of surging growth is indeed achieved.

Fun fact

Interestingly, Apple success created the tallest hockey stick graph to ever exist measured on total market capitalization, as the company's world-changing success delivered a sharp increase in value from US$78b in 2008 to a staggering US$2.9t in 2021, 13 years later.

No other company in history has ever increased its value by +2.8t in a 13-year timeframe and gone through a 3700% increase at such a steep valuation. Apple can thank its successful product lines, and it's amazing sales and marketing efforts for its huge successes, such as the iPod, iPhone, App Store, and Macbook product lines.  That's what we call a proper growth inflection point!

Common metrics to focus on when aiming for hockey stick growth

The most important metrics to focus on when trying to achieve hockey stick growth are:

• New customers and sales
• Churned customers and retention
• Customer acquisition cost
• User consumption and adoption
• User advocacy and referrals
• General product market fit

I have detailed them all in the following text. Let's have a look:

Sales :

The sales metric is the leading indicator for hockey stick growth. Companies should track their sales to identify what products and services are in demand and target those more often. Shockingly, most companies don't track top-line sales outside the yearly fiscal statement. When aiming for surging growth in the hockey stick chart, you must think about ways to allow sales to expand and translate into rapid growth.

Retention :

Understanding and improving user retention is key to hockey stick growth. Establishing a high long-term retention rate will ensure that the user base continuously grows. Companies must identify their target audience, design experiments to induce user engagement, and measure the impact of changes on retention rate. Hockey Stick charts are impossible to achieve if customers leave you faster than you can acquire them.

Churn:

Churn is a metric that measures the ratio of customers who stopped using the product or service of the business and switched to another company's product or a different solution in a certain period. This metric is essential to track, as it indicates customer satisfaction and loyalty, both critical ingredients for hockey stick growth.

Customer acquisition cost:

This metric indicates the cost necessary to acquire a new customer. A low customer acquisition cost means that the company can bring in customers at a lower cost and in higher numbers, thus leading to hockey stick growth. Companies should monitor customer acquisition costs from different sources and optimize marketing campaigns accordingly, as some sources are likely to be most costly than others.

Viral effect and brand advocacy:

A viral effect is when existing customers share the product or service with their friends, family, and peers. This can lead to exponential growth and leads to hockey stick growth. Companies must focus on creating a great product or service that people will want to share with others organically. Providing excellent customer experience from start to finish will encourage customers to be brand advocates.

Conversion rate:

The conversion rate measures how many visitors come within your brand sphere, end up converting into one of your conversion goals. Such as becoming a paying client, scheduling a meeting, and asking for a quotation. Companies must focus on increasing the conversion rate to drive hockey stick growth, as conversion rates often work across the board for all traction channels. Companies should identify core areas of optimization, such as graphical expression, user experience, and communication, to increase the conversion rate.

Product market fit:

Product market fit is the degree to which a product satisfies and exceeds customer requirements. Companies must ensure that their product is hitting the right notes with customers and not just offering a partial solution. Product market fit is a life-long journey that people companies aspire to, but only few achieve.

Common issues which prevent hockey stick growth

Many common issues come in the way of achieving hockey sticks. Achieving hockey stick growth would often require a systematic approach, of

• Experimenting, acquiring information, and iterating,
• Defining the target customer,
• Validating the product-market fit,
• Building a scalable sales and marketing engine.

Some common roadblocks include (many overlaps):

Customers are churning faster than they are acquired:

Customer churn can be a significant obstacle to hockey stick growth. Companies must identify why customers are leaving and then focus on improving retention. This often involves launching customer engagement initiatives such as loyalty programs, reward points, and feedback surveys to understand why clients are abandoning your product.

Customers are not advocating your product:

Customer advocacy is an incredibly powerful way to propel hockey stick growth. Companies must identify and reward their most loyal customers while leveraging their positive experiences to incentivize others to try the product. Creating brand advocates that share positive stories about a company’s products and services can be a powerful growth engine.

Lack of product-market fit:

Achieving product-market fit is essential for hockey stick growth. Companies must identify their target customer, understand their needs and preferences, and develop a product or service that meets those needs. Organic growth is an excellent indicator of product market fit. It’s also essential to collect customer feedback to ensure the product remains relevant and valuable to their need.

Customers do not understand your product:

Many companies sit on great products with terrible CX/UX/UI or even plain communication. They struggle to explain their product in a way that resonates with customers. A lack of understanding can prevent hockey stick growth, so creating clear, concise messaging that resonates with target customers is essential. Businesses should also consider launching educational campaigns and self-help sections with videos to help explain their product offering.

Customers are not converting:

Companies must consider optimizing their sales and marketing processes if customers are not converting. Companies should strive to streamline the customer experience and develop streamlined processes that allow customers to quickly and easily purchase their products.

One of the most common conversion killers is when companies speak to a different stage of the funnel, where the customer is not ready to convert - yet.

• Top of funnel - Create awareness. Visitors meet your brand for the first time
• Mid of funnel - Interest. Visitors take an active interest in your brand.
• Md of funnel - Consideration. Visitors start to seriously consider your product
• Bottom of funnel - Conversion. Visitors turn into customers.

Far too often, companies go directly for the kill and try to hard-sell visitors too early on. This is deterring to most people, as people are usually congested with ads. Instead, focus on converting people to the next stage of the funnel, and you will see conversion rates increase.

USPs are messy or unclear:

Companies must ensure their USPs are clear, concise, and easily understood. If the USPs are not communicated effectively - or even nonexistent - hockey stick growth is almost impossible. They need to focus on creating compelling messaging that clearly communicates the value of their product or service.

Competition is beating you:

Competition can be a significant obstacle to hockey stick growth. Companies must stay ahead of the competition by understanding customer needs and continuously innovating their product offering. Essentially all of the above factors should ensure that you beat the competition and not the other way around.

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