Paul Graham's 'Startup = Growth', Quoted

Paul Graham's definition of a startup has one ingredient. His September 2012 essay Startup = Growth opens: "A startup is a company designed to grow fast." The rest of the essay follows from that line. Growth, in his words, is "The only essential thing".

This post walks through the essay's main arguments in Graham's words. Each quote links to the original essay.

What makes a company a startup?

Not being new. Graham writes that "not every newly founded company is a startup. Millions of companies are started every year in the US. Only a tiny fraction are startups."

Not technology or venture funding either. What sets a startup apart is that it is built to grow fast, and Graham argues that "Everything else we associate with startups follows from growth."

What is a good growth rate?

Graham gives numbers, from Y Combinator:

"A good growth rate during YC is 5-7% a week. If you can hit 10% a week you're doing exceptionally well. If you can only manage 1%, it's a sign you haven't yet figured out what you're doing."

He stresses knowing the number at all: "If you don't know that number, you don't even know if you're doing well or badly."

What should you measure?

Revenue, if you can:

"The best thing to measure the growth rate of is revenue. The next best, for startups that aren't charging initially, is active users."

Active users work as a stand-in, he explains, because once a startup starts charging, revenue will probably be a constant multiple of active users.

How should a growth rate guide decisions?

Graham calls this section "Compass". His advice is simple: "We usually advise startups to pick a growth rate they think they can hit, and then just try to hit it every week."

The value of a target is that it collapses a messy problem into one question:

"Focusing on hitting a growth rate reduces the otherwise bewilderingly multifarious problem of starting a startup to a single problem. You can use that target growth rate to make all your decisions for you; anything that gets you the growth you need is ipso facto right."

He also notes a side effect: "The fascinating thing about optimizing for growth is that it can actually discover startup ideas." And he frames growth as a discipline: "For startups, growth is a constraint much like truth."

Why do small differences in growth matter so much?

Because they compound. The essay includes a table of weekly growth rates and what they produce over a year. At 1% a week a company grows 1.7x; at 10% a week, 142x.

Graham's comment on why this is hard to feel: "Our ancestors must rarely have encountered cases of exponential growth, because our intuitions are no guide here." And the consequence: "Small variations in growth rate produce qualitatively different outcomes."

Why do investors and acquirers care?

Growth explains the rest of the startup world, in Graham's account. On venture capital: "The reason VCs like to invest in startups is not simply the returns, but also because such investments are so easy to oversee."

On why founders take that money, his answer is growth again: "If you have such an idea and don't grow fast enough, competitors will." And: "Raising money lets you choose your growth rate."

On acquisitions: "Pretty much every successful startup will get acquisition offers too." Fear is part of it, he writes, since a growing startup might expand into the acquirer's territory: "Most product acquisitions have some component of fear."

The short version

• A startup is "a company designed to grow fast"; growth is the only essential thing.
• 5–7% a week is good at YC, 10% exceptional, 1% a warning sign.
• Measure revenue, or active users if you aren't charging yet.
• Pick a target rate and let it make your decisions.
• Small differences in weekly growth compound into very different outcomes.

This post reports what Paul Graham wrote in one essay. To look up what he, Warren Buffett, Sam Altman, Marc Andreessen or Naval wrote on your own question, you can ask Mímir. Each answer cites the original essay or letter.