Fast 50 – A better methodology

The Fast 50 competition run by Deloitte is a great idea. You basically figure out who the 50 fastest growing technology companies in the UK are and you honor them for their achievements.

However, the current competition (in the UK) has some methodological problems. As a consequence, fast growing companies are sometimes missed, thus the list is incomplete, pundits start criticizing the whole approach and the end result is diminished from what it could be. That is a shame.

I personally have made some very half-baked comments on Twitter about this and thought I would put some more effort into suggesting some minor changes to the methodology that would make the competition more inclusive, more interesting, and more just. Here it goes.

The current approach

The Fast 50 are calculated by taking the revenues of a company, comparing it with the revenues five years later, calculating the increase in revenue, express that as a percentage increase and then rank companies according to percentage increase. Sounds great. And actually, it is not a bad approach. However, it has two problems associated with it:

1. Shooting stars are ignored. You found a company. Three years later it could have £100m revenue. You are nowhere to be seen in the Fast 50. That feels somewhat wrong to me.

2. There is a minimum amount of revenue in the first year of Euros 50k. If you have £10k in the first year, you have to wait another year. This might be despite that fact that in four years, you have grown faster than anybody else, but because your first year value was so small, you are basically ignored. Even worse, you are then forced to take your second year value, which might be £1m and as a result, you are placed far lower in the ranking than you ought to be. Again, this strikes me as wrong.

I think with some subtle changes to the methodology, both problems could be avoided.

Suggested changes

I would introduce the following subtle changes to the methodology as follows:

1) Abolish the five year period. Replace it with a flexible period of a minimum of one, and a maximum of five years. With the last year being the most recent accounting period. This allows for the accommodation of shooting stars, but will still keep long term solid growers in the race and high up in the rankings. Because you take a combined percentage amount for the rankings (not an annualised one) this should have no adverse effects on long term strong performers.

2) Abolish the Euros 50k minimum requirement. Replace it with a levelling approach. For all companies with revenues smaller than Euros 50k in the first year, replace it with a Euros 50k value. This means you always have a base to compare against and companies with £0 in the first year are not discriminated against.

A few hypothetical scenarios, let’s see what the effect would be

Scenario 1:

a) Company A posts £50k in the first year and has consistent growth of 100% year-on-year for five years. They post £1.6m in year 5.

b) Company B posts £50k in the first year, as well as the second, third and fourth year. In year five, revenue jumps to £1.6m. The company submits years 4 and 5 for consideration.

According to the current Fast 50 methodology, both companies are equal. Under the new methodology, this still holds true. Consistent growers are not squeezed out by companies with a short term boost, even when such companies use two years as the time period for consideration. However, under the suggested changes, one could state the time period and as a consequence, the achievement of Company B looks a bit more impressive, but both companies would still have the same score.

Scenario 2:

a) Company A posts £50k in the first year and £5m five years later.

b) Company B posts no revenue in year one and £5m in the second year.

Under the current rules, Company B is ignored twice. First because they don’t have Euros 50k in the first year and second because they don’t have a five year accounting period. Under the suggested rules, both companies would get the same score, as Company B’s first year revenue would be set to £50k. Again, Company B would look more impressive, as it should.

Scenario 3:

a) Company A posts £1m revenue in the first year and £25m five years later, a 25x increase.

b) Company B posts Euros 25k in its first year and Euros 5m in its second year of operations, a 100x increase (assuming a Euros 50k base for calculation purposes in the first year).

Under the current methodology, Company B is ignored. Under the new rules, Company B outranks Company A. It think this is actually the correct way of doing it. If companies get to Euros 5m so quickly, then I really want to hear about them!

Conclusion

I think there good reasons why the current Fast 50 methodology makes a lot of sense. It is objective, it is quantitative, it is revenue based. But is has some limitations. By tweaking it slightly, you stand to lose very little, but you allow for a wider pool of fast growing companies to enter, and you make it a more interesting and a more just competition. Sounds good to me.

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2 Comments on “Fast 50 – A better methodology

  1. Thanks Jens,

    It is an interesting approach. There are oddities in any consistently applied methodology, e.g. in the one you describe, the winners could well be corporate spin outs with year 1 revenue of zero/negligible then year 2 of £100 million.

    While we don’t decide the methodology for the Global Fast 50 programme which has been running using the same methodology for the eleventh year, there are good reasons that the five year rule is put in place. And in any listing, a consistency of method offers some ability to compare trends over time.

    The Fast 50 has always aimed to identify companies that have grown consistently over time rather than the occasional rocket ships that are relatively easy to find and are generally well celebrated – MoshiMonsters, Graze and Wonga for example.

    You can of course use lots of other metrics to measure growth – profit, number of employees, social media profile(!), investment etc. None of these are necessarily ‘wrong’. I think the interesting thing about these ranking is often the degree of overlap between lists using very different methodologies. I am still surprised at the relatively low number of venture backed companies that appear in most of the quantitative lists though – http://thebln.com/2011/08/vcs-try-to-back-fast-growth-businesses-the-uk-data-says-they-might-suck-at-it/#comment-5877

    Fast 50 entry into this year’s list closes 16th September – https://www.deloitte.co.uk/fast50/apply-now/nomination/login.cfm

    • Hi Mark,

      The Fast 50 methodology is okay. But it could be better. Just to say: “This is what we have been doing for the last 10 years and it is okay”, is just not quite good enough somehow. This could be better. Much better.

      So why not do it?

      Have a look at this video, maybe this will help understand what I mean: http://www.youtube.com/watch?v=FF-tKLISfPE&feature=related

      Yes, you may lose something along the way, but that does not mean that you should not progress.

      Jens

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