So how fast must your startup grow? Y Combinator has a growth benchmark to determine that
It’s been said that compounded interest is the single greatest force in the universe (finance people love it so much that they attribute the quote to Albert Einstein, although it’s extremely unlikely that he ever said that).
But the same principle applies to young companies, as this post by Nick Brisbourne shows. In a september essay, Paul Graham of Y Combinater said that Y Combinator is all about growth, because in his opinion it’s the one measure of success for startups. So Y Combinator candidates are encouraged to grow at a rate of 4 to 5 percent per week – less than that, and you ‘don’t really know what you’re doing’, is the Y Combinator thinking. The reasoning is explained here, and it’s hard to argue with these numbers:
A company that grows at 1% a week will grow 1.7x a year, whereas a company that grows at 5% a week will grow 12.6x. A company making $1000 a month (a typical number early in YC) and growing at 1% a week will 4 years later be making $7900 a month, which is less than a good programmer makes in salary in Silicon Valley. A startup that grows at 5% a week will in 4 years be making $25 million a month.
I didn’t run them through a spreadsheet myself. Would love it if someone could make a nice graph of this that plots the function of growth. Or a small ‘how much will you earn in 2016′ browser calculator based on your current growth.
Brisbourne does warn for one thing – unsustainable growth (you might call it Groupon growth):
The classic case of unsustainable growth is where each customer costs more to acquire than his or her life time value.
Increasing your revenue thanks to customers that cost too much delivers impressive revenue growth numbers, but that also increases the burn rate of your capital at the same time.
How do you manage growth?
Do you have a benchmark in place? Was your company ever in danger of ‘Groupon growth’? Let us know at email@example.com
Photo, Flickr, Akzo
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