Compounding Growth

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?

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