Implications of Business Growth

Video Transcription

In this episode we’re just going to have a look at the implications of growth. So you hear a lot of people saying my business grew by 10% last year or 50% or we’re really smashing it, grew by 100% last year, double the size of the business.

But what founders, owners and people who run businesses often fail to think about is the implications of that growth rate, both in terms of financial planning ahead and really what impact it will have if you sustain a high level of growth over a long period.

Now, the government in the UK say a fast-growth business is anything that’s growing 20 per cent or more in the UK.

Growth Scenario Planning

So, let’s look at what happens if you grow 20%.

And, when we talk about growth rate over a longer period, we’re really talking about the annual growth rate over a period of time. So, of course, it’s something called compound annual growth rate or CAGR for short.

So we’re just going to add that to our chart. So we’re saying 20% growth rate. How much bigger would my business be after three years? of a 20% consistent growth rate? You can all have a quiet guess in your head at the moment, but the answer is, you will end up being 1.7 times bigger over three years.

So, nearly twice the size over a 3-year period, if you keep 20 percent growth rate up for those 3 years.

What happens over five years? Well, over five years, you’ll be two and a half times bigger as a business. So just start to think about that in terms of where you’re at now, in terms of staff, transactions, through the bank, revenues, customers, marketing, those sorts of things.

At 20% growth rate, you will be two and a half times bigger over five years if you keep that growth rate up. And a lot of our clients at Next Level Business are growing well in excess of 20% per year.

So let’s up the game.

Let’s look at 50% growth.

Where are we going to be if we achieve 50% growth year in year out for three years? Well, that number suddenly becomes quite big here. You’re three and a half, nearly three and a half times bigger than you were with that 50% growth rate.

Now, obviously, if you’re a smaller business, it’s easier to achieve higher growth percentage numbers.

But that means if you’re a small business, you could be radically transformed in 3 years using that level of growth. After 5 years, that number is 7. 6 times, so nearly 8 times bigger after 5 years, if you’re growing at 50% a year.

Now, that’s when it starts to really hit home that the business you’re running today in five years, if you’re growing at 50 percent per year, you’re going to be eight times bigger than you are today.

So just pause to have a think about that for a moment from a, from a customer perspective, revenue perspective, complexity perspective, process perspective, people perspective. Can you employ eight times more people? What are you going to do to attract eight times more people than you’ve got at the moment?

What are you going to do to deal with nearly eight times more customers, more processes, more buying, all of those things in your business? It’s quite substantial, isn’t it?

Over five years and plenty of businesses that have got themselves in a good place aren’t growing at that sort of level. But fail to really realize that 8 times bigger in 5 years really needs to, you know, you need to start laying the foundations for that growth now.

Scenario Planning, 100% growth

Let’s ramp it up a notch again and look at what happens if we achieve 100 percent growth per year.

What happens in 3 years? Well, actually we’re 8 times bigger. So, it means that in 3 years you’re going to be 8 times bigger than you are today. Very similar to a 50% growth rate over five years. But, if you achieve that over 5 years, arguably you’ll be doing extremely well, but that number suddenly becomes a very scary 32 times bigger over 5 years.

So, you can see here from this little table (in the video) that depending on your annual growth rate or compound annual growth rate that you’re able to sustain over three or five years, if you’re able to do better than the definition of a fast growth rate according to the UK Office of National Statistics at 20%.

If you can do at least that or bigger, your business will look substantially different to how it does today. So our advice is to understand the implications for growth in your business and make sure you plan accordingly, and you’ll be better set up for success. See you next time.