“A startup is a company designed to grow fast. Being newly founded does not in itself make a company a startup…If you want to start one it’s important to understand that. Startups are so hard that you can’t be pointed off to the side and hope to succeed. You have to know that growth is what you’re after. The good news is, if you get growth, everything else tends to fall into place. Which means you can use growth like a compass to make almost every decision you face.”
Towards the end of 2012, Y Combinator cofounder and partner Paul Graham wrote a fantastic post on startups and why growth is an important factor to such business models. According to Graham, the growth rate of revenue is what startups should measure, with the second option being the growth rate of active users (for those startups that don’t initially charge for whatever they’re providing). In his post, Graham says that a healthy, weekly growth rate for YC startups is between 5 and 7 percent, with 10 percent “doing exceptionally well.” For startups, keeping track of their weekly growth rate is essential to helping them tread the path to profitability.
Y Combinator partner Trevor Blackwell recently created a way for startups to look at how this weekly growth rate can impact them in the long run. Through his Startup Growth Calculator, you can determine approximately 1) when your startup will reach profitability and 2) how much capital you’ll need in order to reach that point.
The Startup Growth Calculator is set to weekly as a default, but you can change it to monthly or yearly. Monthly is shown here. (via Startup Growth Calculator/Trevor Blackwell)
The calculator is pretty straightforward to use. You have the option to change measurements between weekly, monthly, or yearly. From there, you simply input your initial revenue and expense per your selected time format, and then input your revenue growth. Playing around with the calculator, you can get a better sense of what kind of growth rate you’ll need in order to reach profitability in such-and-such time with [this amount] of capital. It’s a pretty nifty tool, so check it out.
Check out the Startup Growth Calculator.