In this podcast episode, the host examines the stark reality behind the Inc. 5000 fastest‑growing companies list. Citing Kauffman Foundation research, he reveals that roughly two‑thirds of Inc. 5000 firms either go out of business or are sold at a fire‑sale within five years, despite their impressive growth metrics. He contextualizes these findings with broader startup failure statistics—50% fail by year five and 96% never reach a ten‑year anniversary, while 91% never hit $1 million in revenue. The discussion pivots to the tension between rapid growth and profitability, introducing the “Rule of 40” as a framework for balancing revenue expansion with healthy margins, especially for bootstrapped companies that avoid external capital. The host reflects on his own journey, emphasizing that sustainable, profitable growth should support personal freedom and lifestyle goals rather than become an end in itself. Interspersed are sponsor reads for Club Capital, an accounting advisory firm for insurance agency owners. The episode concludes by encouraging listeners to view the Inc. 5000 as both inspiration and a cautionary tale, urging a holistic view of business success that includes profitability, founder well‑being, and long‑term viability.
Chapters
If you go back to the 5-year failure rate of businesses, of all startups, 50% of businesses are out of business. Interestingly, since they showed up on the Inc. 5000 list, the Kauffman Foundation did a study. I'm surprised actually the Inc. 5000 allowed them to do this study. They found that 67%, two-thirds of the businesses that show up on the Inc. 5000 fastest growing companies list within 5 years have either left, meaning they've gone out of business, or they have been disadvantageously sold, meaning it's effectively a fire sale.
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Hey everyone. Well, if I sound a little different, I'm actually recording this podcast from the car line. For those of you with school-age kids, you can certainly relate. Well, I don't know if you have paid much attention, but every August and September, the Inc. 5000 fastest growing private companies In America list comes out. The magazine has just come out. I picked it up. I encourage you to go and check it out because it's a fascinating read and stories about the different companies, about how they've been able to grow, how they launched, et cetera. And I want to share with you that a couple of years ago, I'd not really paid much attention to it, but then I ended up doing actually some research on the Inc. 5000 fastest growing companies. And I want to share with you some of the takeaways, but also some interesting thoughts around a stat that I came across that I found to be absolutely fascinating. And I can look back on my own journey and realize kind of where I previously thought something was the answer to everything. You see, when you look at statistics in business of startup failure and/or success rate, you'll find that 20% of the companies after 1 year have gone out of business. After 5 years, 50% of all startups have gone out of business. But after 10 years, 96% of small businesses and startups never see their 10th birthday.
That's incredible.
96% of small businesses never see their 10th birthday. And in fact, in addition to that, just to make the odds seem even more bleak, 91% of businesses never cross $1 million in top-line revenue. So if you've been able to successfully be in business over 10 years and cross $1 million in annual revenue, congratulations. You are indeed and have indeed beat the odds of business. With these companies specifically to qualify for the Inc. 5000, they look at a 3-year growth period and so many of them have just incredible growth, 200%, 300%, and some of them obviously well into the thousands, $1,500, et cetera. I'm interested in the companies that specifically have been able to be bootstrapped, meaning that they're not taking on outside investment. They've been able to grow while remaining profitable. See, for all of us, unless you're taking on outside investment, we have to balance both growth and profitability. We call that, by the way, the Rule of 40, which I've done a podcast on specifically. But For this conversation, I want to tell you in my own specific journey, I shared with, told myself, the thing that matters is growth. If I can just grow a little bit more, sales fixes everything in the business. Maybe you've subconsciously said something like that similarly in your own journey, or maybe even explicitly said that, or maybe you've heard other people expound that idea. Well, here's the interesting thought. If you go back to the 5-year failure rate of businesses, of all startups, 50% of businesses are out of business. Interestingly, since they showed up on the Inc. 5000 list, the Kauffman Foundation did a study. Surprised actually the Inc. 5000 allowed them to do this study. They found that 66% 7%. Two-thirds of the businesses that show up on the Inc. 5000 fastest growing companies list within 5 years have either left, meaning they've gone out of business, or they have been disadvantageously sold, meaning it's effectively a fire sale.
That's fascinating.
So that begins to debunk the myth that growth solves all problems. Growth is absolutely incredibly important, and it is no question about it, a huge honor to be listed on the Inc. 5000 fastest growing companies. Maybe you've never thought about putting that as part of your vision board or doing the research of what it actually takes to do that. In fact, revenue numbers, you have to, I think most recent qualifications is You had to have at least $100,000 in revenue in 2021, and then you've gotta be doing at least $2 million in 2023, if I'm not mistaken. And then you have to have at least grown to a certain percentage to qualify to be in the top 5,000. And so you're already beating the odds. The reality is if 67% of those businesses that had previously showed up on that list have gone out of business or have been disadvantageously sold, you begin to kind of question the idea that growth and sales fixes everything. So what is the balance that we have to be able to have? We want to be able to grow. We want to have year-over-year growth, but at the same time, we have to build a business that's sustainable for the long haul. Was it a flash in the pan? Was it We happen to hit the market conditions just right, or maybe simply we're growing, but we're not profitable. And so I think looking back on the thing I've shared around the Rule of 40, and look, the Rule of 40 is not the end-all be-all, but it's absolutely a huge part of trying to balance between the two, between balancing revenue and profitability at the same time. And so whenever you go through and you start to look at 5,000 fastest growing companies and you start to see some of the incredible growth that these companies have had year over year over year, just keep in mind there's a huge part of that that we don't know. We don't know the hours that the founders and the owners are working to achieve that. We don't know the profitability. We don't know how much money those owners are taking home. I don't know about you, but I got into business for freedom and flexibility and certainly for income potential. And having a business that is growing and is growing steadily year over year over year, but it's also profitable. It's also giving me personally enough of the income that I always hoped for. It is allowing me to be able to take significant time off, to be able to spend time with your family and your friends and to do things you love. For me, playing golf. For you, maybe something else. Just keep that in mind as you're reading through some of those stories of growth for growth's sake. It does at times come at a cost. So I'd encourage you to check out the Inc. 5000 list. I think it would be a fascinating study. I'm looking at, sitting here looking at the COVID image now, and it can be absolutely motivating and inspiring. And when you hear someone else, maybe they're not on the Inc. 5000 list, but they talk about their growth, just always keep in mind the other part of that, or the maybe the other parts of that, which is what about their profitability percentage? What about how much time they've had to spend? What did they necessarily have to sacrifice. And I think for you, as much as it is certainly for me, is that I really didn't want to sacrifice the other parts of my life just at the altar of business success. And my guess is that you don't either. So use it as motivation and maybe even aspirationally to possibly put it on your list and on your vision board of something that you want to achieve. In business as well. But at the same time, growth doesn't fix everything. I hope this helps. Appreciate you listening. Thanks so much for the support. Until next time, lead well.
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