How fast must a company grow in its projections to attract interest from venture capital funds?

Typically, no less than fifty percent compound annual growth rates after sales start will be needed to clear the minimums. More often, no less than one-hundred percent compound annual growth rate (CAGR) will be required at some point.  Of course, growth rates can vary by year, and these are just the average over a five to eight year investment before a liquidity event to cash out.

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Bob Norton is a long-time Serial Entrepreneur and CEO with four exits that returned over $1 billion to investors. He has trained, coached and advised over 1,000 CEOs since 2002. And is Founder of The CEO Boot Camp™ and Entrepreneurship University™. Mr. Norton works with companies to triple their chances of success in...

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What is the difference between growth and scaling?

Well, although this is not officially defined by anyone, growth is literally any growth at all. We define scaling as the kind of growth that venture capitalists seek for high returns on their investments, which means fifty-percent compound annual growth rate (CAGR).  Typically, the math of this, which is reaching $100 million in sales in about five years, means a company will need at least 50% annual growth, and maybe 100%.  Here is a table that shows this kind of growth and reveals that massive compounding factor of this kind of growth. And explains why venture capital must seek large opportunities to pay high yields on capital invested, which can only come from strong growth.

What this math says clearly is that a company that grows at 100% per year will be worth one hundred and twenty-one times more than a company that grows at 10% per year after eight years. This is what creates real wealth when compounded, and what venture capitalists seek.  The truth is even...

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Do you need capital to scale or grow a company?

The vast majority of companies will need outside capital to grow at more than twenty percent or so compound annual growth rate (CAGR).  This can vary a lot by industry, sales cycle, margins and other cash-flow factors.  Some industries are more capital intensive, requiring upfront investment in plants, equipment, people, research and development or other things. However, generally if you plan to grow a company over $1M in sales, you will need a working capital financing strategy projecting these needs over three or more years.

We define scaling as over fifty-percent growth.  So, unless your gross profit margins are exceptional, and your sales cycle and costs are very low, you will likely need outside investors to grow this rapidly. You can always choose to grow more slowly at whatever rate your cash-flow can support, but that may cause you to lose potential market share, especially early in a markets' life.  Or you can seek some debt financing which will require...

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How many managers are needed if you want a company to grow smoothly?

There is a ratio called span of control that says the most people directly reporting to a single manager should be seven. This can vary some based on the people, management systems and other factors, but it generally applies in most areas of a company.  More direct reports means the manager will have little time for other work and activities like planning, strategy, communications with outside vendors, etc.  Of course, not every manager has seven employees. Some may have only one or two.  I usually differentiate this novice as a “supervisor” not a manager. They oversee an employee or two but may not have the harder management responsibilities like planning, hiring and interfacing with other departments. They are really a manger trainee but often giving the title of manager even though they lack the skills needed.

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What must change in a company as it grows to reach larger scale?

This is a complex question, as there are many things that must evolve with growth. We break this down into the four “gear shifts” to get through the five stages of growth shown in the image below.

The numbers above are just an approximation and can vary widely by industry and company, but are guidelines.

Each stage requires very different management style, level of planning, people and risk management. These changes must be done, or the company will go sideways or fail. And often means giving up previous lessons learned and habits in the new stage.   

Raw Startups require speed, high risk and micromanagement while the product market fit is figured out. Flexibility and agility are key, and easy to do with a small organization. Fast decisions, cheap testing and rapid feedback are required as cash-flow is likely negative and time is your enemy.  The key goal is building the product and making sure it is valuable to the initial target market.

When the ...

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What kind of companies are most scalable?

Typically, product companies are more scalable than service companies because they are easier to scale and also easier to build barriers to entry around, which protects your margins from twenty clone companies. This is because anyone can hire your people and replicate most of your services. Many industries have near zero barriers to entry like real estate sales where you just rent a desk and join the MLS.  It is also possible to have service companies that are hybrids because they have some proprietary processes, products and trade secrets embedded that help create some sustainable competitive advantage.  H & R Block is a good example of this as they supply many systems for sales, tax prep and other benefits that enable the services, so an individual tax preparer has a tougher time competing.

Because scaling almost always requires outside capital too, you generally need strong margins and a large market opportunity to attract outside investors.  This means you...

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How do I know when my company is ready to scale?

To me, scaling means growth over 50% per year, which can become exponential in a few years. That kind of growth requires that a company be very developed in its internal processes and systems. And it must also have a serious and experienced management team.

Planning this growth is complex and will usually also require outside capital.  You also need complete systematization in each area of your business, not just to “Do it” but also to hire people, train people and manage those people too. So, with five departments this means four times five total procedures or systems to “do it” (i.e., sell, delivery, generate leads), hire, train and manage (by the numbers).  Or about twenty total systems. These may be simply a few pages, and I usually recommend a flow chart as a visual helps people learn and improve these as more employees join the company. 

Shifting gears as a company moves to rapid growth is very difficult, and few figures it out...

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How long does it take to prepare to become a founder?

I spent 10+ years preparing to launch my first big company opportunity at age twenty-nine. Having already started four different businesses before I finished high school, I had some basic experience and knowledge. I worked as a software engineer in my first full-time job after college. I worked on both mainframes and the first major Apple computer (Apple II). I then quickly move up the ranks to Senior Software Engineer, Architect and Vice President of Engineering by year five of my professional career.  That is exceptionally fast because I read every book available, did consulting on the side, worked long hours and had little social life.  I also had the benefit of working in a newer field (microcomputers) where no one had five or ten years more experience than me because the field was new and rapidly changing too.  I had been programming computers since age sixteen, which was rare then, so even starting my first job I had the equivalent of a couple of years full-time...

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Do you know any platform where people can study the skills to run their own companies?

Yes, I personally have created two platforms with about 40 courses total for this purpose, and a third set of courses for executive teams preparing to scale a company. There are at least 30 skills an Entrepreneur/CEO should learn before founding a company, not that they can be expert at all or even most, but all these skills will be needed on a team.

We have trained thousands of CEOs from over 40 countries at The CEO Boot Camp since the first one in 2004. This program is for aspiring and active entrepreneurs to learn what they need to become good CEOs and entrepreneurs. It has 12 foundational courses on the things required to design a business, build a product and launch. We find even very experienced CEOs do not know 50% of what we teach there. 

Learn more about our Growth and Scaling (GSP)
Certification program for Managers

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company and team need to scale better


The second platform unbundles all of...

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What Are Some Key Components That Will Make An Angel Investor More Likely To Invest In One’s Startup Company?

One of the good question and very complex too. Here are my top 12:

  1. Strong CEO and Team - This is 50% as a strong team can fix everything else. And a CEO that has built and exited a company before, ideally. Young, new entrepreneurs will need a stronger team, advisers and board.
  2. Large market opportunity. Usually, $1 billion plus in 5 years.
  3. Clear market entry strategy, going after a niche (small market) and expanding into other niches or broader market after 1–2 years to make product and other infrastructure robust.
  4. Creation of barriers to entry, or sustainable competitive advantage. We teach 17 ways to do this beyond just intellectual property at CEO & Entrepreneur Training
  5. Gross margins over 50%
  6. Product sales with some data on cost of customer acquisition, conversion and life-time value (resales)

    Click here to get this Financial Package

  7. Recurring revenue from same customers
  8. A financing strategy that shows the potential step up in stock as new milestones are reached, and...
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