One of the topics that’s critically important, but I don’t think is well understood, is that of compounding growth. It’s amazing to think that something starting so small — a few hundred dollars from the first sale — can grow to be many millions over time. And, assuming it’s recurring revenue with high renewal rates, the growth continues indefinitely.
Just think about growing something from a base of $100,000 at a rate of 10% every year:
- Year 1 – $110,000
- Year 2 – $121,000
- Year 3 – $133,100
- Year 4 – $146,410
- Year 5 – $161,051
Now, grow at a much faster rate of 100% every year from the same base:
- Year 1 – $200,000
- Year 2 – $400,000
- Year 3 – $800,000
- Year 4 – $1,600,000
- Year 5 – $3,200,000
One growth rate of 100% per year results in a business that’s 43 times larger than the other with a 10% growth rate over the same time period. Incredible!
Entrepreneurs would do well to understand the importance of compounding growth.
What else? What are some more thoughts on compounding growth?
David Cummings on Startups 