We Talk About Growth, But How Do You Judge If Your Growth is Good?
Over the past two years as we have been launching Inventis Strategies each of us has had many conversations about the importance of revenue growth -- with each other, with clients, with prospects.
We talk about S-curves and hockey sticks. We talk about what do you do when growth slows, stalls or worse. We talk about “lifestyle” companies who do not seem to care about growth, as they are happy with the money they are making.
Through these conversations Inventis decided one market segmentation characteristic we want to focus on is companies that want to grow, more specifically perhaps companies that want to grow but are struggling with achieving that growth.
With that said, how do you judge if a company’s growth is good in comparison to the market or competition (not to be confused with quality or sustainable growth which is more focused on repeatable revenue)?
Is 3% good growth? What about 10%? Or 20% or even higher?
It is those questions I am addressing today, and the first key is to think about context – specifically market and competition.
For a Silicon Valley Start-up in the Y-Combinator Accelerator program, they talk in terms of 5-7% growth per week being a good growth week, 10% being exceptional (http://www.paulgraham.com/growth.html), but for most companies (even technology companies) that is not the right context to judge yourself against. Hell, most companies would be happy with 10% or even 5-7% growth per year, it all depends upon the context of your market and competitors.
If you are in a mature market that is relying on inflation for growth (say 2-3% from price increases) and you are growing at 5-10%, you are growing faster than the market and your growth is good as you are taking market share away from your competitors (the other context).
If you are in a market that is growing 20-30% and you are growing at 5-10%, the market is growing faster than you and your competitors are taking more market share.
Let us get back to the question at hand – is my growth good? To answer that question, you need to be looking outside your own numbers. How fast is the overall economy growing (GDP) or how fast is the economy in your region growing? If you are keeping up, or better yet outpacing the economic growth that would be a good sign. How about your market, is your market growing faster than the economy? If so, that should be your judge. The data may be more difficult to get, but industry associations and governments can be a source for this information. Are you able to track your key competitors? Can you tell if you are growing faster than them? These factors determine if your growth is good or not, and only you can decide if you are OK growing at the market or economy rate, or if you want to grow faster.
With all of that said, let us look at something tangible to set a benchmark for growth. Every year Inc. Magazine publishes the Inc. 5000 – a list of the 5000 fastest growing companies in the US (the list for 2017 is found here - http://www.inc.com/inc5000/list/2017/. I did some math and calculated the Compound Annual Growth Rate (CAGR) needed over three years to make the list.
To make the top 100 of the list you would have needed a 3-year CAGR of 240% - that is amazing growth and is up from 223% from the 2016 list.
To make the top half of the list (#2500), the 3-year CAGR needed was 34% - still amazing growth – and to make the list at #5000, the 3-year CAGR needed was 12% - which is 4 or more times the growth of the US economy as a whole. (both were the same in the 2016 list)
Can your company grow fast enough to make the list, or fast enough to grow faster than the economy? Of course, any company can if they want to, so the next question is how and that depends on multiple factors. How mature is your market? What is the competitive dynamic of your market? Do you have adjacent markets that you could grow in? Are there more ways that you can provide value in your current market?
If you want to learn more about our thoughts on growth check out our other blog posts or our white papers on Growth at http://www.inventisstrategies.com/growth-strategies.html
If you are interested in exploring these questions and seeing how you can have good growth at your company, don’t hesitate to e-mail me at email@example.com. I always enjoy a good conversation about getting to growth.
Insights into building great products and choosing the right markets to grow.