Were it not for growth, investors would steer clear of startups. So it stands to reason that the companies that grow the fastest are worth the most to those willing to place risky venture bets.
How can entrepreneurs turn their hopes into actual revenue growth that quickly hits $100 million?
I wish there was an easy answer to that question. Absent that, here's a company that seems to be on the right path and six general principles from its successful growth trajectory that others might find useful.
The company in question is Social Finance -- the San Francisco fintech company commonly known as SoFi (I invested in SoFi in December 2014) -- valued at $4 billion in its latest round of fund-raising.
SoFi provides student loans, mortgages, and other services to Millennials whom it believes have the brains and discipline to use those services to achieve financial success.
SoFi generates fees from selling bundles of loans. More specifically, it sells loans to third-party investors via securitizations or whole loan sales. In addition to other sources of revenue, SoFi has securitized more than $5 billion in total loan sales and has sold more than $3.6 billion to banks and issuers since it was founded in September 2011.
SoFi has expanded considerably along other dimensions as well. It now has over 600 employees with offices in San Francisco, Healdsburg, Calif, Utah, Montana, and New York. And it has made about $12 billion worth of student loans mortgages and others -- serving 175,000 members.
How did SoFi grow so much in such a short period of time? It constructed an effective growth trajectory along the five dimensions of growth -- customer groups, geography, products, capabilities and culture -- about which I wrote in March.
SoFi's growth trajectory highlights six principles.
1. Target the right customer group
Startups can't afford to sell to all potential customer. Instead, they should target right target customer group meaning :
- The market segment is inherently more attractive; and
- The company can take share because it offers customers a more compelling product
As SoFi's VP of Community and Member Success, Dan Macklin explained in a recent interview, SoFi grows faster than rivals by "focusing our efforts on creating a set of products and services that appeal to a highly engaged group of people, and offering lower rates than most of our competitors thanks to our proprietary underwriting model."
This "engaged group of people" was initially alumni groups at schools such as Stanford and Harvard. But it has since broadened to anyone seeking student loan refinancing at about 2,200 institutions across the country.
SoFi targeted an attractive segment and won customers because it gave them a better deal.
2. Build non-financial relationships with customers
Customers are people -- and that means they will want to do business over time with your company if they like your people. One way to do that is to host social networking opportunities among customers -- many of whom are young professionals on the rise.
To that end, SoFi "strongly believes that financial services should go beyond a transactional relationship. One of our major goals currently is to deepen our level of engagement with the SoFi members in the communities where we are. [To that end]we host community events (dinners, happy hours, workshops, etc.) in 55 cities across 30 states with more than 7,000 attendees," said Macklin.
If such networking forges emotional bonds, a company may be able to offer its customers more products.
3. Use design thinking to invent new products
To develop such products that customers want to buy -- use design thinking, a process that begins with listening to their needs and observing their behavior.
"As we've always done, we'll continue to listen to our members and create products and experiences that make their lives better. We started with student loan refinancing, but moved into mortgages and personal loans after our members asked us to help them with other aspects of their financial lives. We saw that people were struggling with how to take control at work, so we created an in-house career strategy team, so they can turn to coaches who help empower them in their careers. People have always had trouble talking openly about money, so we created a community where individuals could connect with and learn from each other," said Macklin.
If your company offers new products that solve observed customer problems, revenue growth will follow.
4. Take your show on the road
A very common and effective growth vector is taking what works in one location and expanding it to others.
Since SoFi got started at Stanford, it has expanded to many more states. "Since the early days, SoFi has been operating across every state in the U.S. except Nevada for our student loan refinancing product, and we're now lending in almost all markets for personal loans and we can provide mortgage loans in more than 26 states, and expect this to increase quickly," Macklin said.
While you should analyze the different regulations and needs of people in different geographies before hand, growth by taking your show on the road often boosts revenue growth.
5. Upgrade your skills
If you do all these things well, growth will follow. But success can create new problems. If your operations can't keep up with the growth in demand, customers will get frustrated and go elsewhere.
To prevent that from happening SoFi is improving its operations. As he said, "We're always looking for ways to get faster and more efficient, to deliver the most enjoyable customer experience imaginable. We regularly examine our internal processes, as well as take in feedback from current and potential members, and are open to addressing any changes needed in the way that we think will best serve the SoFi community."
If you're growing fast, make sure your operations expand and improve to sustain a high level of customer satisfaction.
6. Create a culture that works for employees and customers
A great culture hires and motivates people to act according to values that matter to a company's founders and its customers.
SoFi's culture stresses thoughtful analysis of decisions and rapid execution. According to Macklin, "Our culture is action-oriented. We believe in being thoughtful, but making fast decisions and adjusting or moving forward as needed. This gives us the ability to be nimble and react to the market and our members - who are at the heart of everything we do - quickly."
Follow these six principles and your company will grow faster.