What is a good growth rate to plan for in a small company?
Posted by Robert Norton on
I believe a minimum of 25% should be planned for in growth as anything less will likely leave you behind competitors and being a follower, not a leader in the marketplace. I consider “Scaling” to be growth of 50% or more annually. That is far more difficult and requires a quality management team, strong internal processes (systematization) and likely some capital investment in addition to cash-flow.
If you can reinvest your cash-flow and/or get some low-cost debt, which usually requires at least eighteen months of profitability, you can maintain control and avoid the time and complications of raising outside capital. If your market opportunity has a limited time window, you would probably be better off raising some capital and growing faster.
You may also be able to create growth by getting better payment terms with vendors who may have a much lower cost of capital than you and wish to see you succeed, so you can increase purchases from them too. As a company grows, it can potentially increase working capital by millions by paying vendors on sixty- or ninety-day terms instead of thirty day terms or COD. This can have a huge impact on working capital.
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As a company gets larger, that 25% growth can turn from hundreds of thousands to tens of millions per year. Making the growth exponential. So scaling requires far better management and planning for capital needs and other areas of the business. Here is what happens to valuation when a company grows at 10%, 50% and 100%:
What this math says clearly is that a company that grows at 100% per year will be worth one hundred and twenty-one times more than a company that grows at 10% per year after eight years. This is what creates real wealth when compounded, and what venture capitalists seek.
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Bob Norton is a long-time Serial Entrepreneur and CEO with four exits that returned over $1 billion to investors. He has trained, coached and advised over 1,000 CEOs since 2002. And is Founder of The CEO Boot Camp™ and Entrepreneurship University™. Mr. Norton works with companies to triple their chances of success in launching new companies and products. And helps established companies scale faster using the six AirTight Management™ systems. And helps companies successfully raise capital.
Call (619) SCALE06 or email info@AirTightMgt.com for a complementary strategic consultation
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- Tags: Expansion - Growth, Scaling