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How Do You Grow Any Company To $100 Million? This is a big question with many moving parts and hundreds of things to get right that come from experience and art, not just black and white answers. However, there are many things that can be easily agreed on that will go a long way to getting you there. First let’s talk about the stages of a company’s development, because it is clear that there are very different skill-sets and modes of operation required at different stages. Let’s call these stages 1) “Raw Startup”, 2) “Early Revenue” and 3) “Established”. “Raw Startup” is the idea development stage, working out of the home or "garage" without a significant burn rate. Generally you are spending most of your time developing your plans, researching the market and customers and defining the product. You may also develop the actual product or a prototype, or you may need to raise some funding to accomplish this first. “Early Revenue” is when you have a product or service to sell. It might even not be the “real” product, or may be a service that gets cash flow going and builds the team and customer relationships that helps meet milestones to the “real product”. “Established” is a company that has customers and a real revenue stream, maybe not any profit, but it is getting real close to REALLY understanding the market and scaling to profitability. First you must understand that you can only really understand the market by being in the market. Everything else is basically intellectual masturbation and can come crumbling down very easily with the introduction of a few unknown facts. Having constant customer feedback on a real product is the only truly believable market research. Most people, especially market researchers do not understand this basic idea. Research is one thing and actual customer feedback from using a real product is TOTALLY different. Until that happens, everything is theory and what people say they will do.
In one study done a company interviewed people going into a store about what they were planning on buying there, and then checked what they actually bought on the way out. In FACT people did NOT buy what they said they would 70% of the time. A cold, hard reality, and why investors want to see real customers that are paying cash, not just saying nice things about your company. The fact is that you can not go and build products based on surveys because they are even less valid than this example because things will even change BEFORE you can actually develop the product. We are all shooting at moving markets today due to rapidly moving technology and other macro factors. First off let’s start with the initial steps of a “Raw Startup”. All of these steps are while you are working out of your home and pulling the business plan together. You are avoiding expenses like the plague and trying to get up to speed on your business, product and market. This is something entrepreneurs must understand fully themselves, and can not hire other people to understand for them. Step #1 – Idea – This is actually the easy part. Due to the constant march of technology, new opportunities are always emerging. You must have an idea that will solve a painful problem and do it at an order of magnitude cheaper, or better, than anything else out there. This is, the “better, faster, cheaper” approach and in technology products is generally the most common approach. Alternatively, a “paradigm shift” product is much more expensive to launch, as change takes more time and money. So you need to leap-frog competition by an even wider margin. An evolutionary way is better than a revolutionary way usually because the later typically requires even more time and capital. The improvement(s) must be so great that companies have no choice but to listen to you, and try your product or service. Sounds hard, and it is, but if you can’t say this about your product, then it will be a difficult and slow process to get anyone to take the risk of working with a new company. They will simply wait for the next generation from their current vendors who will be happy to tell them it is coming soon. However, a key to understand here is that even once you have all this you are only two to five percent there! The fact is that there are great ideas everyday and what makes a good business is far more. The fantasy that having a good idea allows you to build a business is just that – total fiction. There is much more to it. Want proof? The people who own exclusive patents on key technologies collect royalties of only a few percentage points typically. That is because the rewards MUST flow to the team and the capital invested to make an entire business work, not just to the inventors. If it did not the business could never be created and the inventor would get nothing because there is not market, production, distribution, sales, or operations to deliver the product or service. So get away from the idea that a good idea makes a could business – nothing could be further from the truth.
Step #2 – Team - Begin to develop your team with the correct skill-sets that hammers all the major risks, and there are many, with the right domain experience, the right level of experience (solution ideas, lead, manage, or do) AND working in the right stage company. A VP of Sales who worked at a $1 billion company does not likely have the skill-set needed to be the VP of Sales at a startup. You probably will not be able to attract someone like that anyway as there are few that would take that kind of risk today. Even if you did, as many did in the Internet bubble with easy funding of $10MM+, they still are not the right kind of people for you to build your business with. As a “Raw Startup” this team needs to be “virtual”; meaning you can get lots of expert help for short money or none at all. It is unlikely that one individual can do all that is needed to plan and design a business completely. Step #3 – Market Research - Do tremendous amounts of market research, face-to-face and other interacting with lots of potential customers. When I say this, I mean you, as the entrepreneur need to be spending two, three, or even six months on this until you know you have it right. You can do this while you have no burn rate except your own personal expenses, but as soon as you start hiring other people, time has now become the enemy. The more research you can do without hiring full-time employees, the better. One of the best ways is to get paid to do this market research by developing some related consulting assignments. My latest company, C-Level Enterprises, Inc., is an excellent example of that because we will actually had more than twenty different products developed before we had a single full-time employee except myself. I used contractors to fill in the skills I needed for lots of things, probably more than fifteen people over the first six months on small projects, but had very little overhead and consulting revenue coming in to support this product development. I call this a “service to product flip”, a strategy that is great today because it requires very little capital and yet gets to the point of having real product leverage that pure service businesses rarely provide. Essentially, service customers are covering your expenses while you are developing your product(s) and you are also getting very close to your customer market and learning, effectively on someone else’s nickel. These early customers get great value too, because they are getting the advantage of the product you are building directly or indirectly and the early use of it as a competitive advantage. So this can easily be a win-win. This is likely to add value to your services for them too if your product and services are closely tied together. This market research process should include developing a complete customer brochure and showing it to potential customers for feedback. The important thing here is that by the time you are done you REALLY understand your market and the product need well – I don’t mean theory I mean 99% certainty on the need, problem and value. This does not mean the product is fully defined but the need and value is fully accessed. Step #4 – Develop Your Business Plan – At this stage this should be an executive summary and/or a deck of PowerPoint slides that is narrowing in on your Unique Selling Proposition and how you will get from here to break-even. This is easier said than done and will require help from several people across all the major business disciplines. These people must have high-level management experience in sales, finance, operations, marketing and product development, or whatever skills, you can not say you have done full-time for five or more years. This idea here is you are defining your business model and so you need input from people in the five major business areas: sales, finance, marketing, operations and product development.
Step #5 – Develop Your Funding Plan – Today this is a different process and different plan than in the past due to the scarcity of early-stage funding and the fact that the bar is much higher than in the past. Generally investors are investing later and expecting a much lower risk. Develop a funding plan with options that do not require more money than absolutely necessary to get to breakeven. If you can develop a service to product flip plan you will dedicate the time to consulting (and learning more about your market) that might go to fundraising efforts. It is easy for a CEO to spend 50% of their time on fundraising for a year or more today and I know some that spend close to 100%. This sacrifices the greatest resource of the company and is one of the real weaknesses of capitalism. You (yes you the CEO!) need to build a simple spreadsheet financial model that you can understand completely and plug numbers into as new information becomes available. It is not time to hire a part-time CFO, controller or accountant until you are much further along, and even then you need a tools to model the business financial accurately that you totally understand. You can get a little help from these people for review and comment on what you have developed. If you have no experience with financial projections you probably have no business starting a company and need to get that knowledge. This should never be delegated at this stage. It is not brain surgery, as I am talking about a simple and straight forward cash accounting model here, not tax law, accrual accounting or other gymnastics that will just isolate you from the reality of cash flow way too early. Even angel investors are insisting on breakeven cash flow 12 months out because they are avoiding the VC cram down that dilutes them to nothing. If institutional funding is required the market should be projected to be $1 billion or more in five years. However, remember 40% of the Fortune 500 companies were started with less than $25,000, so don’t make the mistake of relying on VC money in this environment. I am recommending to most of my clients today to design a business plan that can get to breakeven on personal resources, then friends and family and, at most, $1 million in angel money alone. This is possible with most companies and gives you options. Because of the funding gap between $2 million and $5 million today many good companies are doomed to failure because their financing plan is all wrong from day one. They have designed in the need for a financing that is impossible in today’s environment. Step #6 – Prove You Can Sell It – At this point, plans can diverge completely, depending on the capital and time required to get to a first product. You need to develop something in “startup mode”, which means it is a focused 80% solution, not the end-all be-all, that you might picture developing, ultimately. You need a very targeted niche, which means an actual list of customers and a very tight profile with a good understanding of the “economic buyer”. This is the person who signs the check, the “user buyer” is who actually uses the product, and the influencers in the sales process are people who influence the decision but do not make it. The ultimate proof is getting POs or checks, while being honest about the delivery time and risks, if the product is not ready. The goal is to get to real-time, real-world customer feedback from people who have some commitment because they paid for the product and have invested their time and maybe even taken personal risk. These are the best first customers because they will do whatever it takes to help you succeed, if you do the same for them. There are many ways to grow any company to this $100 million in sales. You can grow a product portfolio of small products, attack larger markets as you get bigger, or get there by acquisition doing a roll-up of other companies, merging for stock. You can also vertically integrate (moving up or down the value chain to grab more of the value added from raw materials to end product) and many other strategies. You should not even think about this until later. You first need to establish your market beachhead then customers and experience in that market will guide you. The bottom-line is that any company can grow to $100 million in sales, though not any product, because a company is just a legal entity that holds value inside it and you can always add more products, services and people (scale) to it.
The idea is by now you have a “draft”, or first iteration “vision” of how the business will work in all areas. You can be pretty certain it is not all correct, but from here you can iterate to a real working business more rapidly. Business Design Is an Iterative and Never Ending Process The fact of the matter is that today all businesses must evolve or die. They need to be constantly redesigning themselves because of rapidly moving markets and technologies that can shift their entire market landscape. The old saying the “Even if you are on the right track, you will just get run over if you sit there”, could not be more true for any business today. Individuals and smaller companies are now being empowered to do things that only large corporations could afford to do in the past in many markets. The idea is that you are entering an iterative business design process that will never end. And it looks like this:
Notes: “CI” is short for competitive intelligence and we will get to the “Marketing Pyramid Later”.
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