By: Wesley Legg
Many business owners would consider a company with a revenue growth rate of 40% exceptionally attractive. “Surely this is a well-founded business primed for a promising future. With a growth rate of 40%, this company will soon be a dominate player in their market.” But they’ve forgotten a key part of that equation, What’s the market’s growth rate? If the market is growing at 60%, this company is sprinting towards obsolescence as it hemorrhages market share.
However, on the flip side in the 2008-2010 recession when the markets were plummeting, we saw companies with negative growth rates receive all-time high valuations. They were gaining market share since the market was contracting faster than the company was. A company’s future cannot be summed up in a number as simple as growth rate but should be compared to its competitors’ growth rate.
Rather than only focusing on growth, business owners could benefit from benchmarking their growth rate relative to their market. Here are some ways to determine your market’s growth rate:
- Ask an industry association in your sector
- Read annual reports from public companies in your market
- Hire a local MBA student
- Have a internal analyst calculate it – here is a helpful article for calculating market grow rate
If you would like to discuss how this applies to your business, we would be happy to talk with you: Contact Us.