A critical metric that any company should take into consideration is the growth rate.
Despite the differences in business models, every company, especially those in the early stage, feels the need to grow for two reasons:
- External pressure: the company needs to secure funding. Before investing in a startup, investors determine if the investment is attractive. Presenting revenue forecasts to investors is always tricky. In fact, if it’s too low, it doesn’t show an opportunity, and investors are not eager to bet, while if it’s too high, it’s unrealistic and hard to reach.
- Internal pressure: the company wants to maximize profits and create economies of scale. If the company grows too slow, then it doesn’t have enough resources to allocate or if it grows too fast, it impacts operations becoming hard to manage.
Growth rate is not easy and simplistic to calculate and handle. In fact, one of the biggest challenges is handling a rapid growth. Business owners have to be very careful and prepared to avoid operation and financial issues.
According to Paul Graham, the growth of a successful startup usually follows three phases:
For the first months (24 months) the rate of growth is almost zero. In this phase, the product has been launched, and the company needs to verify if there is a demand for that product or service. Afterwards, in the second phase, the product has gone to market, been tested and finally it starts getting a product validation. At this point it starts picking up quickly and then finally it scales after the 36th month. During this phase the company starts experiencing some rapid growth.
So, how can you manage a rapid growth?
a) Analyzing statistics: keep an eye on numbers, financial and operations ratios (sales, assets, overheads, inventory...). These elements are important to determine where you stand financially and which measures to take.
b) Creating an excellent customer experience (CX): focus on customer feedback and understand where you are in the market.
c) Staying lean: aim at optimization and continuous improvement
d) Investing in the right resources: choose and train people who are a good fit and align with your values
e) Being flexible to adapt to the changes in the marketplace.
In the end, the goal of business owners is to make sure the business is growing and the growth is organic.
There is always a high level of uncertainty and many variables to consider. If you want to grow organically, spend time on your product, test and adjust based on the market’s response, listen to your customers, and be ready to change QUICKLY.