At What Rate Should A Startup Grow?

May 12th, 2017 | by James B
At What Rate Should A Startup Grow?
Business
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In this day and age, startups are growing faster than ever before. This rise is fueled by shifting consumer preferences, the proliferation of acquisition channels, and the presence of private market investors. But, startups also fail at staggering rates and many of them never accomplish rapid growth.  It seems many people have forgotten that building a startup into a sustainable business always takes time.

Growing pains and gains

A growth rate is one of the crucial metrics that often gets overlooked or misunderstood. Not every type of growth represents a driving force behind success. In other words, a period of rapid growth does not mean that a sudden fizzle is out of the question. In fact, such a scenario is common in the cases of organizations that burn their funds too quickly in order to spur growth. Any growth that outpaces the ability to fund is a bad growth.

Then again, venture capitalists are investing at an unprecedented rate and are empowering startups to target a vast audience right away. Likewise, companies that provide equity funding are helping many startups get their operations off the ground. This gives rise to winner-takes-the-most dynamics, whereas the fastest growing startups secure the biggest piece of the pie.

After all, startups are often described as business organizations designed to grow quickly. This makes sense considering that is the only way to get funding. Alas, some startups take calculated risks by going deep in the red, paying possibly the ultimate price for the sake of stellar growth. The million dollar question is not how to grow, but how much growth is good growth.

Not built to last

An optimal growth rate varies from startup to startup and their stage of development. For example, one figure gets thrown around often: Startups backed by venture capital aim at 5% or higher growth per week. However, this is far from being a hard rule. The same goes for Y Combinator companies that consider 10% growth rate to be exceptional and 7% to be merely “good”.

Well, the truth is that a 10% growth rate cannot last forever. Many business owners are misled by strong growth rates that occur after the launch. They do not realize that they tend to be higher than the ones after one or two years when the law of big numbers kicks in.  Tech industry startups often undergo a spike in growth, which is then followed by a plummeting period of novelty wearing off.

At What Rate Should A Startup Grow?

In due time

Other studies have confirmed that startups that start growing quickly slow down as they scale up. On the other hand, organizations whose growth is steadier and more measurable are in a position to maintain it for a longer period of time. Furthermore, public companies grow substantially faster (percent-wise) the smaller they are.

Ultimately, to discover the best possible rate of growth, startups must factor in multifarious factors such as industry sector, team’s capabilities, customers, and most importantly, the funding phase and a source of capital. Sound planning makes all the difference. Startups that are able to make accurate revenue forecasts are certainly ahead of the pack. Of course, this is not to say startups need to proceed slowly.

The point is not to expect overnight success and avoid cutting corners. So, it is safe to assume startup owners and founders should pay little attention to mind-blowing success stories and unrealistic growth rates.  They are much better off focusing on their own organizations and figuring out what drives their growth organically.  So, pace yourself and strive to achieve your goals just in time, not prematurely or too late.

At any rate

Rapid growth is not a one-size-fits-all solution for startups. It is highly advisable to come up with a roadmap of growth and bear in mind that predictability, volume, and quality of the revenue are just as important as a growth rate. Focusing on the growth must never make you lose sight of other elements that make or break startups. Slow and steady may not win the race, but neither does the one that moves at breakneck speed.