Deloitte recently released the 2019 edition of its annual Technology Fast 500™ Ranking. The Edison portfolio is well represented with six of its fast growers making the list. Congratulations to Terminus, Solovis, VirtualHealth, TripleLift, PathFactory and eSentire.
Through this year's Growth Index study, we learned these fast growers and their peers in our portfolio have several key characteristics in common:
Spend significantly more dollars on Sales and Marketing. Fast growers see 100 percent higher Sales and Marketing spend with a primary focus on customer acquisition. In 2018, they invested 50 percent to 60 percent of revenue on Sales and Marketing, which is in line with Edison’s recommended range.
Invest more in Customer Success. New this year, the Growth Index found that fast growers spent 6x more to onboard and retain customers. As a result, they grew ARR with existing accounts by 35 percent, retained revenue at 17 percent higher rates, and saw net dollar retention of 102 percent. Fast growers also enjoyed Net Promoter Scores that were 40 points higher than their slower-growth peers.
Hire faster and retain employees longer. Fast growers grew headcount by 22 percent in the year. Even with rapid hiring, fast growers drove revenue per employee more than 3x higher than slower growers. Fast growers also prove to have a keen focus on what Edison Partners refers to as the people equation, meaning they are better at building distinct corporate cultures with strong disciplines for employee engagement, performance management, and making difficult people decisions early. This enables fast growers to retain more employees than their slower-growth peers in nearly every functional area.
Record higher EBITDA losses. Bottom-line losses of roughly 86 percent were higher for fast growers, fueled by rapid hiring practices, higher spend in sales, marketing, product, and general administration expenses. While higher operating costs were necessary to fund their business strategy, fast growers still drove gross margin expansion more efficiently by simplifying product, limiting service dependencies, reducing hosting costs, and capturing more value.
With 2020 planning season in high gear, now is a great time to dig into these and other fast-grower characteristics featured in the Edison 2019 Growth Index.