Growth is the heart and soul of startups. Knowing the difference between what is a good growth rate for a startup and what is not, you can quickly tell a flourishing startup from one that's stuttering.
The world of startups can be unpredictable, with a flurry of factors in the dynamic, including emerging trends, technology, market opportunities, policies, etc. But amid all the chaos, growth can be your North Star. It can serve as a guiding light that helps founders, investors, and executives navigate the challenges that accompany startups.
Have you wondered if your startup's growth is on the right track?
This guide will help you gain closure on that. We'll explore the average growth rates of startups and factors to consider when assessing yours. But we won't stop at teaching you how to measure growth. We'll also look into maximizing growth and leveraging it for funding, partnerships, and sustainability.
Let's dive in.
The true essence of a startup is the exceptional growth rate. When launching, the primary goal isn't survival. You need to grow fast, with astronomical growth in revenue, user adoption rates, and other key metrics. Most businesses, unfortunately, get hemmed in by one constraint or the other. They either can't make something that people are dying to have or struggle to reach all those people.
Startups break free from these constraints. They dance on the edge, taking on what others can't.
High growth often leads to more accessible capital. Investors and other businesses would be more willing to hop on your rocket ship because they can see the potential for strategic partnerships and an enormous rate of return. Startups also frequently receive acquisition offers (though the African tech ecosystem is still maturing in this respect). Rapidly growing enterprises can pose a threat to established public and private companies. Acquirers often want to integrate the innovation and future potential of startups into their operations.
With high growth rates, your valuation can be stratospheric, even for pre-revenue startups.
The rate of growth defines a startup's trajectory. But how fast is fast? There's no magic number. It's more like a spectrum of ideal growth ranges. Startup revenue growth unfolds in five stages. These stages bear semblance to the proverbial hockey stick. In the growth curve, a horizontal line representing initial slow growth suddenly shoots up owing to accelerated growth, creating the shape of a hockey stick.
Let's break down this fascinating growth curve.
These are the setup times of your startup. Growth is slow as you're busy figuring out your product market fit, business model, and cash flow pipeline.
An optimal growth rate here might be around 5-7% weekly.
At this stage, your startup needs moderate growth as you're finding your footing in the market. Aim for a startups growth rate of 5-10% per week.
Your product-market fit is solid, and growth is accelerating. This is the main acceleration phase, where growth skyrockets. The goal is revenue growth rates of 20-25% or more per week.
You're now a mature startup, and growth may start to stabilize. A 5-7% weekly growth is a modest rate for successful startups at this stage. It's about maintaining your gains and optimizing your future performance.
When forecasting revenues, what's crucial is that your percent growth matches your stage. Trying to sprint when you should be crawling isn't practical, and walking when you could be running won't get you there. Like any race, it's about finding your pace and staying in it.
Tracking growth rates for startups is a multi-dimensional journey. Let's dive into the factors worth considering when showcasing your forecast to investors:
A startups growth rate that works for a small, early-stage startup might not be suitable for larger, more established public companies.
Different industries have different growth dynamics and growth channels. Tech and B2B companies naturally have greater expectations for rapid growth than businesses in the retail or fashion sectors.
The funding environment can impact revenue forecast and growth strategy.
The chosen startup methodology, whether a lean startup, agile, or another, influences the growth rate for startups.
Economic conditions and social trends can either boost or hinder your growth range.
You're in for cash flow issues if you're burning cash faster than you're making it, even with high business growth.
Understanding how fast you can acquire new active users and how much they're worth over time is essential to your financial performance.
Wasteful practices can undermine your growth channels. Every step counts in your journey to exponential growth.
In simple terms, we'll calculate the rate at which something has grown over a certain period. There are numerous ways to do this, but they all share some recurrent elements:
End Value: This is where you end up after a certain period of time, like the number of customers, revenue, or any helpful metric you want to measure.
Start Value: This is where you began at the start of the same period.
Number of Periods: This represents the duration you're measuring – weeks, months, or years.
Now, we can combine these elements in many ways, but the common method looks like this:
Growth Rate = ((End Value / Start Value) / period)%
Some popular applications include the Week-on-week (W-o-W) or month-on-month (MoM) growth rate. You take the ratio between your revenue at the start and end of a certain period and then divide it by the number of months or weeks within the said period. Multiply your results by 1/100 to present them as percentage rates.
You can also calculate your annual growth rate (YoY) and compound annual growth rate (CAGR), which is your average YoY over several years.
These are the compass points for steering your startup towards growth:
Tracking growth isn't just about numbers; it's about the excitement and possibility of your startup's journey. With big dreams tempered by cautious optimism, you can maximize your startup's potential, expand your resources, and level up your competitive advantages.
Prioritize financial and strategic metrics and foster a growth-focused culture. Keep innovating, and you'll discover more ways to maximize your rate of returns.
When you see a key metric climbing, that sense of achievement, that rush of progress – it's invigorating, isn't it?