Do You Know Your Growth Rate?

Do you remember the childhood nursery rhyme, “Mary, Mary Quite Contrary”? It went like this:

Mary, Mary quite contrary / How does your garden grow?/ With silver bells and cockle shells/ And pretty maids all in a row.

This catchy little nursery rhyme reminds me of how a small business grows.  I’m not referring to growth strategies but rather how entrepreneurs decide their business growth goal.  If someone were to ask how your business grows, would you be as quick on your feet as Mary to respond quickly and with some forethought?

The truth for most small business entrepreneurs is that business growth is somewhat ad hoc. It's somewhat of a mystery. When asked about business growth goals, entrepreneurs respond in a variety of ways, including “do better than we did last year” or “double what we did last year”. This seemingly unplanned, off the cuff response doesn’t come from a casual attitude about business growth, but rather from not having a foundation from which to set realistic, strategic growth goals.

While obtaining my MDE (Management Development of Entrepreneurship) at UCLA Anderson School of Business, I had the good fortune of studying under Professors Yvonne Randle and Eric Flamholtz. In addition to their work at UCLA, they own a consulting firm that allows them to work with companies like Starbucks and Jamba Juice to create a framework for entrepreneurs to be more prepared to grow their business.

Based on their work with a variety of organizations, Prof. Randle and Flamholtz identified 5 rates of growth for small business firms. (From Growing Pains…Transitioning from an Entrepreneurship to a Professionally Managed Firm by Eric Flamholtz & Yvonne Randle)

  1. Less than 15% annually – Although many may consider this rate rather unspectacular, a firm will double its size in five years while growing at a 15% rate.
  2. 15 – 25% annually – Rapid growth
  3. 25 – 50% annually – Very rapid growth
  4. 50 – 100% annually – Hypergrowth
  5. Greater than 100% annually – Light-speed growth

Although rapid growth and hypergrowth rates are very appealing to the always-optimistic entrepreneur, it’s good to note that such growth rates can create more problems for an entrepreneurial firm. Rapid growth can make it difficult to keep up with the infrastructure needed to support that growth and a business can actually choke on it's own growth.

Isn’t it nice to have some guidelines from which to be intentional in planning your business growth? The next time someone ask how your business grows, like Mistress Mary, you can answer with great conviction.