The Power of Long-Term Compounded Growth

Recently I was reading about Liquid Web and their new CEO from Atlanta, Jim Geiger (founder of Cbeyond). Liquid Web is a well known web hosting company with over 400 employees and many thousands of customers. Now, when thinking about web hosting, it’s often viewed as a commodity and a low growth industry. Only, Liquid Web was on the Inc. 5000 last year with 79% three year growth. Founded in 1997, Liquid Web has well over $50 million in revenue (probably much higher) and shows the power of long-term compounded growth.

Here are a few thoughts on long-term compounded growth:

  • Starting with $1 million in revenue, at the end of 20 years of 20% per year growth, the company would have over $38 million in revenue
  • Recurring revenue businesses are among the easiest to grow every year because of the existing base of business to build from (that’s one of the reasons why Software-as-a-Service is so desirable)
  • Ralph Roberts bought a little cable company with 1,200 subscribers in 1963 and now the company, Comcast, has 27.2 million subscribers and $68.8 billion in revenue last year (source)
  • Many multi-generation family businesses with substantial scale are great examples of decades of compounded growth (see the Mittelstand model in Germany)
  • Einstein has the famous quote: “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.” (source)

Much like the Stanford marshmallow experiment, entrepreneurs that can delay gratification and continue to put more money back into the business to grow it faster, and do so for a long period of time, have the opportunity to build large companies due to the power of long-term compounded growth.

What else? What are some other thoughts on the power of long-term compounded growth?

One thought on “The Power of Long-Term Compounded Growth

  1. From what I have seen in the SAAS IPO posts is that they seem to have compounding losses too.

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