What it means
The chart itself is neutral: some real businesses genuinely follow this shape, particularly software and marketplace companies where each new customer costs little to serve and word of mouth compounds. The problem is that the shape is easy to draw and hard to earn, so investors see it constantly in forecasts that have no mechanism behind the bend.
A hockey stick is therefore a claim about the future that needs evidence, not a neutral description of a chart. The commercial significance is that the bend in the line is where almost all of the value in a projection sits.
A five-year plan that ends at $16 million of revenue is only worth what it is if the years of steep growth actually happen, and everything before the bend contributes very little. Anyone reviewing such a plan should therefore stress test the assumptions in the steep section rather than debating the near-term numbers.
In practice, the way to test a hockey stick is to look for the specific driver: a new distribution partner, a pricing change, a product launch, an expiring contract that frees capacity, or a market that is itself growing fast. If the only justification is that growth rates increase because the plan says so, the chart is decoration rather than analysis.
Good plans name the mechanism and show the leading indicators that would confirm it is working. There is a useful variant in operations, where a hockey stick describes the pattern of sales landing in the last days of a quarter because of discounting and quota pressure.
That version of the phrase is a warning about revenue quality and forecasting discipline rather than about long-run growth. Both usages share the same idea: a flat stretch followed by a sudden, suspicious jump.
In practice
Real-world examples.
Example
A subscription analytics company shows two years of flat $2 million revenue followed by a projected jump to $9 million, justified by a signed reseller agreement with a distributor that already serves 4,000 target accounts. The bend has a named mechanism, so the board treats it as a plan rather than a wish.
Example
A hardware start-up presents the same shape but attributes the bend to "increased brand awareness". With no launch, no channel and no pricing change behind it, the investment committee discounts the forecast and asks for a version with flat growth rates.
Example
A regional software reseller notices that 62% of quarterly bookings close in the final two weeks of each quarter. Sales leadership calls this internal hockey stick a discounting problem and changes the commission plan to reward earlier close dates.
Formula
Calculation
Growth rate for a period = (Current period value / Prior period value) - 1, and compound annual growth rate (CAGR) = (Ending value / Beginning value) ^ (1 / number of years) - 1.
A start-up presents revenue of $400,000 in year 1 and $600,000 in year 2 as actuals, then forecasts $1,800,000, $5,400,000 and $16,200,000. The historic growth is ($600,000 / $400,000) - 1 = 50%, while each forecast year assumes ($1,800,000 / $600,000) - 1 = 200%, and 200% again in each of the following two years. Over the full four-year span the implied CAGR is ($16,200,000 / $400,000) ^ (1 / 4) - 1, which is about 152%, meaning the plan assumes growth roughly three times the rate the business has actually delivered.Case study
Seen in the real world.
This is an illustrative, fictional scenario. Northwind Ledger, a small accounting software firm, took a plan to its board showing revenue of $400,000 and $600,000 in its first two years, then $1.8 million, $5.4 million and $16.2 million. The founders described it as conservative because competitors had grown faster.
The board asked one question: what changes in year three that did not exist in year two? The honest answer was that the company hoped its free tier would convert better, which was an aspiration rather than a plan, so the board asked for a rebuild with only two drivers, a named integration partner and a price increase on the mid tier.
The revised plan reached $4.2 million in year five instead of $16.2 million, and the board funded it. Two years later the business was slightly ahead of the revised plan, and the founders found it far easier to raise a further round against a forecast they had actually beaten.
Watch out
Common mistakes.
- Treating the shape of the chart as the argument, when the only thing that matters is the specific driver behind the bend.
- Building the steep section by assuming growth rates rise every year rather than modelling the underlying units, such as customers, price and retention.
- Confusing an end-of-quarter sales spike with genuine growth, when it is usually the result of discounting and deadline pressure.
Questions
People also ask.
Are hockey stick forecasts always unrealistic?
No, some businesses genuinely inflect, but the burden is on the plan to name and evidence what causes the inflection.
How should an investor test one?
Rebuild the steep years bottom up from customers, price and churn, and check whether the required volumes are physically and commercially plausible.
What is a better way to present ambitious growth?
Show a base case with defensible assumptions plus an upside case, and state clearly which specific events would move the business from one to the other.
From the founder's library
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