Zones of healthy growth levels

Up: § Business philosophies

In general, I believe most startups view growth through a “more is always better” lens. However, I’ve observed and also experienced first hand, that too much growth can also be a negative thing. Negative growth is certainly not a good place to be, and very low growth puts you at risk of slipping into that zone of decline. I’ve come to believe that the sweet spot is somewhere around 10-40% annual growth. One of the ways I think about this, is the concept of zones of healthy growth levels. Colors would range from red, to orange, to green, and then back to orange and then red again.

A low or negative growth rate is a real issue for any company, even a company aiming not to make growth the purpose itself of the company. But even for a company who has other ultimate goals, if revenue is declining, that is a real issue and must temporarily become a big focus. Therefore, the level of focus on growth is related to the zone we are currently in, and the danger levels.

Once you hit strong growth rates, there are other risks that come into play. In general, with a lot of growth comes the need to add resourcing to meet those growth demands (e.g. more customers). This is usually in the form of growing the team, and when you do that, you risk needing to make significant changes to the organizational structure and processes. When you do this, the culture can change drastically and rapidly, values may become overlooked and de-emphasized, and the process changes can be hard for the team to adapt to. Frequently these growing pains lead later to a decline in revenue, but even more painful, a loss of the essence of the company, culture, and what made the organization special. Therefore, it can be beneficial to be mindful of the level of growth even when you hit tailwinds and find yourself in a place of strong growth.

Here’s a rough thought of what I consider to be the zones of healthy growth levels:

  • Negative growth (anything below 0%): Red zone
  • Low growth (0% to 10% growth): Orange zone
  • Good growth (10% to 40% growth): Green zone
  • High growth (40%-60% growth): Orange zone
  • Uncontrollable growth (anything above 60%): Red zone