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Letters on Rule of 40

A balance test for growth-plus-profitability businesses: revenue growth rate plus profit margin should exceed 40%.

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1985·Why unchecked growth destroys returns — the discipline behind balancing growth with profitability (1985 letter)

An iron law of business is that growth eventually dampens exceptional economics. Just look at the records of high-return companies once they have amassed even $1 billion of equity capital.

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Rule of 40 is one of the ideas behind the ValueOS tools. See it applied to real companies.

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