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.
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.
Read more: How many managers are needed if you want a company to grow smoothly?
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.
Read more: What changes in a company needs to grow to reach larger scale?
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,