How Fast Can a Company or Industry Grow?
A Look at the Data: 5000+ Examples
How fast can companies and industries grow?
YCombinator, the popular startup incubator and venture capital investor, looks for companies with 5–7% weekly growth. This implies an annual rate of over 1264%. A ‘bad’ growth rate for them is 1% weekly, or 167% annually.
This rate, of course, is stratospheric and is unsustainable for any company (just $1 would turn into over $240,553,123,022 in 10 years at 1264% compounded growth). But the rate is helpful in determining initial traction, which is really all that most early stage investors are comfortable in betting on.
But looking at patterns of growth rates of companies and industries can provide a helpful benchmark when you are evaluating whether your company, or any company, is growing fast enough. Following are several examples of fast growing start ups, public companies and disruptive industries throughout history.
Growth Companies
Inc. Magazine publishes their annual rankings of what they find to be the fastest 5000 growing companies in the U.S. For 2016, they calculated an average growth rate of these companies at a whopping 232%.
The top 10 companies reported industry growth rates 12,621% to over 66,700%.
And these companies are not pure start ups. All of them appear to have significant traction, with revenues ranging from $15 million to $115 million.
Reviewing the remainder of the companies on the Inc. 5000 you can see a clear and rapid reversion to sub-100% growth rates:
Disruptive Companies
This pattern is evident not just among the small popular startups of the moment, but can be seen even in the biggest success stories.
The unprecedented success of Bezos, Zuckerberg and Jan Koun of Whatsapp all made them billionaires within a decade. But their growth rate, following the inevitability of the math, continued to trend down over their first 10 years in business, albeit on very large numbers.
Public Companies
Public companies are less known for fast growth. Over the decades, the S & P has returned an average of a little over 9% return.
Since 2007 6.93%
Since 2000 4.47%
Since 1990 9.39%
Since 1980 11.57%
Since 1871 9.07%
However, even public companies have their fast growth industries, some of which approach the growth rates of star startups. Below is a list of the compounded annual returns of the fastest growing public industries. As these are calculated over a five year horizon, these numbers are even more attractive than many of the companies in the Inc. 5000 whose figures are for just a single year.
Is Growth Accelerating?
Several interesting studies have been done that suggest that the rate of innovation is increasing. The following tables mapping the rate of adoption of major technologies are compelling:
But of course, once an industry or technology reaches all the population, it can’t grow faster than the population growth, and its growth rate will continue to decline as it approaches this point.
But it is not entirely clear that major shifts occur substantially faster now than in the past. Human nature still is human nature, and some people are faster to embrace new things than others are.
While news of technology can be disseminated much faster than in the past due to communications, and often, lower infrastructure requirements, people still have different levels of resistance to change, based on their existing stakes, their entrenched issues, or their need for new solutions. Therefore, adoption to change, and therefore the growth rate of an industry or company will continue to be constrained by these issues.
In fact, comparing the 10 year trends of industries in different sectors and in different time periods, indicates the same, simple dynamic, as with the other examples in this article:
Comparing the strongest 10 year consecutive growth rates of auto sales, consumer lending, PC computers, hedge funds, and the Internet in the U.S. demonstrates this well.
As with all the other examples, this disruptive industries enjoyed market growth of perhaps 100% or more in their best years, but all returned to no more than 20% to 30% towards the end of their strongest 10 years.
mike@slimstrategic.com
