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What's a good rate of growth for a small business?
“How fast should the business be growing?”
I get this question from entrepreneurs all the time.
We’re a competitive group by nature, and we want to have benchmarks to set ourselves against. We want to know what our peers in other companies are doing—and then we want to do just a little bit better than them.
You can find stats that say average growth is anywhere from 15% to 45%. But it’s also possible for companies to double or even triple in size year over year.
But how fast you can grow isn’t the same as how fast you should grow.
The real answer, of course, is “it depends.”
Your company’s growth is determined by many external factors:
How long you’ve been in business (startups often see more rapid growth)
The industry you’re in (SaaS companies can expect higher growth than service companies)
Economic conditions (were you just hit hard by the pandemic, or did your space actually benefit from the shift online?)
External considerations aside, however, we help put business owners in the driver’s seat of their own companies. That means we give you the tools and resources to determine your own pace of growth.
Once you’re buckled up, how hard do you want to hit the gas?
Here are three things to take into account:
Appetite of the Business Owner Affects How You Grow
Your desire for growth as the business owner is the single most important consideration in your company’s growth. Even the best senior leadership team can’t make this decision for you.
Growing fast is a high risk, high reward proposition. As the owner, you have the most to gain—and the most to potentially lose—from rapid growth. That risk has to be within the realm of what you can tolerate on a daily basis.
Your current financial situation, potential need to take care of a family, and even your personality all play a role in determining your appetite for growth. If you need to maintain a stable financial environment, support a growing family, and aren’t by nature a big risk-taker, you might not want to step on the gas too hard.
If you’re going to get on a roller coaster, you want to be able to enjoy the ride.
If you choose to grow fast, you should also expect a significant investment of time and money. In my experience, entrepreneurs in high-growth organizations are working more, not less. There’s a time when things do level off and you’ll be able to cut back your hours, but those first few years of growth are all hands on deck.
If you’re not ready to commit substantial sums of money (yours or ideally someone else’s) and a good chunk of your time, consider slowing things down a bit.
Finally, you have to be willing to change your business model. If you grow quickly, your company will need to achieve delivery at scale. If you’re accustomed to building deep personal relationships with your clients, expect that to change. Your company can still build a great product or deliver great service, but you won’t be able to stay involved in the same way. By nature, you’ll have more client turnover and more team turnover. You’ll need to be okay with all of that in order to succeed.
Gross Profit Affects How You Grow
Call me crazy, but I am never a fan of sacrificing your gross profit for more than a few months in order to grow. Keep in mind that I’m coming from a bootstrapped mentality, not a VC-backed mindset.
If you’ve built your company from the ground up, you can’t afford to be unprofitable. Watching your GP will tell you when to hit the brakes on your growth. No matter how much revenue you take in, your business model has to fundamentally work—and that means it needs to be profitable at any size.
One of the big issues with rapid growth is that you have to hire people, fast (see the next section on quality). If you have to acquire full-time employees who aren’t at capacity from day one, your gross profit will certainly take a hit. First, you should anticipate that dip in GP. Second, you should have an aggressive sales plan to get that person full (and fix your gross profit) in about 90 days.
Quality Affects How You Grow
Ah, quality. This element is the true counterbalance to aggressive entrepreneurs who want to grow as fast as possible. I can tell you from personal experience that it is never a good idea to outsell your ability to deliver (I had to shut down a company where we made this unfortunate mistake).
If you’re growing rapidly and acquiring new customers, quickly, do you have the people and systems in place to deliver the goods? The quality of your service or product directly relates to your ability to find, hire, train, and manage your team members to maintain your high standards (and yes, I assume they are high, or you won’t be able to grow in the first place).
Depending on your industry, it may not only be the quality of the end deliverable that counts. If you’re having capacity issues, lead times may go up, or execution may slow down. Will your current or new customers tolerate those changes? For how long?
If you’re planning to grow rapidly, you’ll need an airtight process for bringing on new team members to meet the new demand. Here’s where all those “softer” elements, like core values and company culture, become critical. If your identity as a business isn’t well-established and constantly reinforced, you’re more likely to hire the wrong people and quickly dilute your culture.
Your Final Answer . . .
How fast should your company grow? That’s for you to decide.
Keep in mind that there is no “right” answer to this question. There’s only what’s right for you and your business.
Considering all of these factors requires personal introspection, a dive into your company’s finances, and a look at your core values and identity.
If reading this piece gave you the permission you needed to slow things down, that’s awesome.
And if you read this piece and said “I’m ready to hit the gas hard,” that’s awesome too! We’re here to help you GO FOR IT.
The key is that once you’ve decided how fast you want to grow, you need a plan for doing it. Our consulting team can help. Contact us to learn more.