What makes a company a “rocket ship?”
I am not referring to the current fad of billionaires blasting themselves into space, and then taunting their peers about whether or not they are “astronauts.” (Or who is the richest billionaire? I mean after a certain point does it even matter?)
What I am referring to is the frequent use of the term “rocket ship” to describe a start-up that is experiencing rapid and exponential growth. (One does need to remember that rocket ships can also explode.) How is it that all of these small companies are rocket ships? What does this mean anyway?
When I was researching this term I found a company that is actually called rocketship.vc, isn't that clever? Having “rocket ship” in your name means no one can dispute you!
The Merriam-Webster dictionary definition is super simple, “ A rocket propelled spaceship.” Thanks but not exactly what I am looking for here.
I came across an article by Jeff Bussgang, “The Rocket Ship Startup List:2021 Edition,” that included his definition as well as a huge list of companies he determined to be “rocket ships.” Here is the formula he used to come up with that list:
“The objective criteria for being on the list is is a mix of fundraising (typically > $20m in the most recent round), scale (typically > 100 employees), momentum (typically growing users or revenue > 50%/year), and hiring (typically growing headcount > 50%/year, including a number of entry-level positions that would be a fit for recent college or business school graduates).”
While these are valuable data points, there are some I think that should count for and against this label as well. The missing piece is the product or solution the company is selling. Is it something that is unique and fills a niche? Is it a huge step up from the closest competitor? Do customers love the product enough to tell others about it?
Year over Year (YoY) growth in the user base is an important metric but what about the mix of existing customers renewing vs. new customers buying? New customers contribute to the “launch” effect of sales revenue but a low churn ratio among existing customers gives you a solid foundation of recurring revenue.
My preference would be to drop the term “rocket ship” and come up with a new one, but that doesn’t seem to be happening so here is my definition of a “rocket ship” for a company:
Fundraising - >20 million in the last round is a nice number, but also overwhelming interest in investing in the company then can be used. Also, not just gobbling up all the funding offered but being selective in venture capital partnerships.
Momentum - growing the user base or revenue > 50% YoY
Customer churn - existing customer base churns at less than 15% YoY
Product Competitiveness - The product inspires a moment of “aha!” or “why didn’t I think of that?” reaction. The product has a reputation for quality, customer satisfaction rates are positive, and customers like to talk about the product.
Headcount - Growing by at least 50% YoY, with lower than industry average attrition rate
What do you think? Is there a better way to define a company that is growing at the speed of a rocket? Any ideas for a better term? Lunar module? Ballistic Capsule?