What Is a Weekly Growth Rate? Getting Compound Growth Right

In 1785 the French mathematician Charles-Joseph Mathon de la Cour wrote a playful parody of Benjamin Franklin's Poor Richard's Almanack: Fortuné Ricard. Its hero splits a small sum into five parts in his will and leaves each to gather interest for one, two, three, four and five centuries. The fantastic fortune that piles up at the end is to pay for impossible projects.

Franklin was 79 at the time. He thanked the author and took the idea seriously. In a codicil to his will dated 23 June 1789, he left 1,000 pounds each to Boston, where he was born, and Philadelphia, where he lived. The money was to be lent at 5% to married artisans under the age of 25 who had served their apprenticeship in that town. By Franklin's reckoning, after a hundred years each fund would reach 131,000 pounds; 100,000 would go on public works and the remaining 31,000 would be left to grow for another century. At the end of two hundred years, in 1990, he expected 4,061,000 pounds.

Reality fell short of the sum. According to the City of Boston's archive guide, Franklin's heirs went to court in 1891 and delayed the division. On 17 January 1894, USD 329,300 was paid into the city treasury as the three-quarter share Franklin had set aside for public works. At the gold-standard rate of about USD 4.87 to the pound, that was roughly two-thirds of the 100,000 pounds expected. The money went to a technical school, the Franklin Union, which opened in 1908. By 1990 the Boston fund had grown to nearly USD 5,000,000.

Franklin's error was not in the sum but in the rate. In compound growth a small difference in the rate becomes a wide gap over time. The same holds in a startup.

Calculate your growth rate correctly

Y Combinator partner Tim Brady describes growth rate as one of the first numbers an investor will ask for. The calculation is simple: divide this month's revenue by last month's, subtract one and express it as a percentage. If last month was 100 and this month is 150, growth is 50%.

According to Brady, a common founder mistake is not compounding the growth. If revenue was 100 in January and 600 in July, it is wrong to say "six times in six months, so 100% a month". The compounded monthly growth rate is about 35%. Brady's warning is blunt: make that mistake in front of an investor and you will look either inexperienced or as if you are trying to slip something past them.

Set a weekly target

In his essay Startup = Growth, written in September 2012, Paul Graham explains that Y Combinator measures growth weekly. In his view a good rate is 5 to 7% a week; 10% is exceptional, while 1% is a sign you have not yet worked out what you are doing.

The difference is easy to see once you turn it into a yearly table. By Graham's figures, a company growing 1% a week grows 1.7 times in a year, one growing 5% grows 12.6 times and one growing 10% grows 142 times. In Do Things That Don't Scale, written in 2013, Graham puts it in terms of users: with 100 users, you only need to find 10 more next week to grow 10%; keep that rate and after a year you will have 14,000 users, and after two years 2 million.

The real benefit of a weekly target is the rhythm more than the number. Asking every week "what did we change this week, and where did the rate go?" turns growth from a hope into a habit.

Choose what you measure

According to Graham, the best number for measuring growth rate is revenue. If you are not charging yet, the next best choice is active users. Finding which number carries the real value of the company is a separate task, which we cover in detail in the north star metric article.

Brady draws two more distinctions. First, do not confuse recurring revenue with one-off revenue: money from a monthly subscription can be described as monthly recurring revenue, one-off sales cannot. Second, if your business is seasonal, a monthly rate misleads; use a quarterly or annual rate and say clearly how you calculated it.

Why do we always underestimate growth?

The Turkish word for interest, faiz, comes from the Arabic fāʾiḍ, meaning "overflowing, surplus"; the verb at its root, fāḍa, means "to overflow". In Ottoman Turkish compound interest was called faiz-i mürekkeb, mürekkeb meaning blended or intertwined. That is exactly what compound growth is: the gain is folded into the principal, and the next gain grows out of it.

The human mind does not see this intertwining easily. In an experiment published in 1975 in Perception and Psychophysics, the psychologists Willem Wagenaar and S. D. Sagaria asked participants to extend an exponential growth series; 90% estimated below half the correct value. In 2022 Hanjo Hamann showed in PNAS that the study's own calculations contained errors; in his view, the conclusion that people underestimate exponential growth may have become even firmer through later research. So do not leave your weekly rate to gut feeling: write it down.

Last word

Thomas Malthus wrote in An Essay on the Principle of Population, published in 1798:

"Population, when unchecked, increases in a geometrical ratio. Subsistence increases only in an arithmetical ratio."

Malthus was worried about population, but the sentence describes the two speeds of any business: a growth that feeds itself, and the resources that must carry it, moving in a straight line. In your company, which one is growing geometrically: your customers or your costs?

To read growth rate alongside your cash plan, Before the Cash Runs Out: How to Manage Runway and Burn Rate is worth a read.