6 Steps to Build a Profitable Million Dollar Company (That Most Owners Get Wrong)Posted Friday December 15th, 2017
Have you ever wondered how some Millennial entrepreneurs seem to effortlessly build multi-million dollar companies, while others seem doomed to live in the six-figure club?
Have you ever thought to yourself, if I could only get more customers, I would be well on my way to building a million-dollar business?
Have you ever had moments where nothing seemed to go your way in your business, and you wondered if it would be better to give up and get a day job?
If this sounds familiar, don’t worry. I had those moments, too, on my way to building my first million-dollar company.
I remember banging my head against a wall as we crept up from $80,000 to $360,000 to $780,000 in sales, frustrated at how hard the daily grind was and how far off $1 million dollars felt.
I can remember convincing myself that other entrepreneurs my age had figured it out, so I could, too. And I remember convincing myself that there simply had to be a formula to get to $1 Million in revenue.
Well, let me tell you what I found out when I built my first million-dollar company:
First, it does get WAY easier when you finally get over the $1 Million mark in annual revenue. Sure, you'll have new challenges, but you'll also have essential resources to propel you even higher in your business.
Second, I discovered that there certainly IS a formula for building a million-dollar and then a multimillion-dollar company.
In fact, you may already know some of the components. You might even know all of the pieces of the puzzle, but perhaps haven’t put them together yet to build your empire.
As I’ve coached more and more Millennial entrepreneurs to get their very own million-dollar company, I have found myself repeating many of the same lessons -- the 6 absolutely essential elements of a million dollar company that every Millennial entrepreneur must master in order to build the business and lifestyle of your dreams.
Below, I’ve taken about a decade’s worth of strategies in building multimillion-dollar companies and boiled them down in this blog post so you can see exactly how it’s done. I've also divided the 6 essential elements into two parts: The Business (steps 1 through 3) and The Entrepreneur (steps 4 through 6).
These are the two levers that every company has; essentially, the business itself and the business operator who must be independent from the business in order to create a thriving, scalable enterprise.
With those two elements in mind, here are the 6 absolutely essential elements of building a sustainable, million-dollar company:
Whether you’re a product or a service company, the thing you sell can mean the difference between scaling a company and remaining small. But this isn’t a linear exercise; for example, you might think a local bakery is doomed to be a small company by nature of what it is, but try telling Entenmann’s that.
Virtually every product or service is scalable to some extent, though some scale better than others. For instance, a mobile app is highly scalable, but I would argue that creating an app is far more treacherous than opening a bakery, based solely on the unpredictability of consumer whims on mobile devices versus the slightly more predictable desire we all have for delectable cupcakes.
That aside, your product (and I’ll use “product” to signify either a product or a service from here on out) must have certain characteristics to go from six to seven figures in sales. One glaring issue is the product-market fit, where you’ve (hopefully) properly assessed what your target market is, who your target persona(s) is, what pain points currently exist that your product solves, and how to best reach those people (which we’ll talk more about in Process).
It’s remarkable how many companies are just two degrees off when it comes to the product-market fit. Typically, with more specific packaging or a slightly-tweaked value proposition, you can find the perfect fit and you’ll get near-instant sales lift.
Luckily, sales is a constant feedback loop where you’ll know that you’re not hitting the mark. My largest company started with $12,000 in sales...for the year. On its way to becoming a multimillion-dollar, international company, it pivoted its service mix four times in order to find the right alignment between right product, maximum output, market need and optimal price.
That’s what allowed GEM to crash through $1M and then more than triple in less than two years.
Getting the product mix right is one of the most critical things you must solve in order to scale your business. I’ve seen terrible companies run by horrible leaders reach tens of millions in revenue, only because their product had the right fit for the market. That’s how critical your product can be when it comes to growing your company.
There are two kinds of entrepreneurs: those who run their companies and those who run their systems. In order to create a scalable organization, you must become the latter.
Systems are everything when it comes to creating a sustainable, scalable company. If you think about it, processes exist everywhere in your company -- from how you create your product or service to how you find talent to how you onboard clients to how you pay your bills.
Everything your company does is part of a system.
So, either you’ve designed excellent systems and your company is on its way to multimillion-dollar status, or your systems have organically arisen from your daily operations and they’re causing you pain and grief.
When entrepreneurs are tired and burnt out from working 12-hour days, it's usually because their business is running them. A lack of time is the result of not strategically building systems to run the business. Symptoms of this include that the owner is busy putting out fires, frantically searching for new customers or wondering where all of the monthly cash flow has gone.
If this sounds familiar, you’re not alone. But, know that you must create scalable systems in your business if you want it to grow and provide you with lasting financial freedom and wealth.
If you think your business might be too small to have systems, think again. Have you ever heard warnings about growing too fast, and wondered how fast growth could possibly be a bad thing?
The truth is that fast growth will bankrupt a business that doesn’t have good systems. It will burn up your time and your cash while you figure things out on the fly. Onboarding $500,000 worth of new business is NOT the time to build a sustainable enterprise; you must do the systems work NOW if you hope to scale your business in the next year.
Almost every conventional business book today talks about having the right people in the right seats in your business. That’s fantastic advice, assuming that you know which roles you actually need to scale, which roles you need to let go of right now, and how to even know if the people you have are the right kind of people to grow your company.
This is very much a case where it’s easier said than done. The good news is that you don’t have to scale your company; your people will do that for you if you employ the right kind of leverage. The bad news is that getting the right people and roles into your business can be difficult to strategize and even more difficult to achieve, if you don’t know what you’re looking for in the first place.
This is where a mentor can really help you, because the steps to build the right employee base can be challenging both physically and emotionally.
For instance, the former CEO of Cold Stone once told me that one of the first things he recommends entrepreneurs do is force-rank employees on a ten-point scale and cut anyone who isn’t at least an 8. He knows what every successful entrepreneur knows: once you have a business full of employees that are 8s, 9s and 10s, your company will skyrocket.
But how do you make that transition while serving customers? How do you keep your culture intact during the change? Those are the tough questions that need thoughtful planning and careful execution in order to get the results you desire.
Most importantly, remember: you don’t scale your business, your people do. So, your ability to grow to $1 Million and beyond depends on your ability to properly assess what job functions your growing company needs, and then create and execute a plan to fill those roles with star people.
Your Product, Process and People make up the inner workings of your company. They are the tactical pieces that make your company a scalable engine that produces positive free cash flow and builds net asset value over time.
Sometimes, those pieces alone are enough to propel a company to grow to the million-dollar mark.
But, and this is a big but, they alone are not enough to produce sustainable revenues. In fact, without the proper leader, the company may have a parabolic journey where it grows exponentially for a time, plateaus, and then loses clients and money just as fast as it grew (which happens more than you might think).
That's why there are three additional, critical pieces to scaling a company that have to do with the entrepreneur, starting with leadership.
You, as the entrepreneur, are solely responsible for the leadership of your company. That is exhilarating and scary all at the same time, and it’s the sober truth. As the leader, there are certain things you must do to properly lead your company to higher and higher revenues, profits and returns.
You can probably guess what some of your responsibilities are: learning new business skills, hiring and firing appropriately, setting the strategy, delegating and making sure you pay your bills.
But great leaders know that they have far more responsibilities than that, particularly with your soft skills.
Being a trusted leader requires empathy, which is a skill that can be cultivated through exceptional listening.
Being an effective leader requires having new experiences that you can bring back and integrate into the company to further its development.
And, most importantly, being a stable leader requires that you deeply understand your own strengths and weaknesses and that you take active steps to illuminate your blind spots.
Sadly, most leaders lead from ego and emotion. They lead from what they think is right, rather than seeking multiple perspectives. They lead with all of the baggage they carry around, including past experiences, biases and self-limiting beliefs.
If you want a trick to test whether you’re talking to a great leader, give that person feedback and see how they react. If they get defensive, you know you’re talking to a leader who hasn’t taken the time to develop an appropriate sense of self and all of the soft skills that go along with truly great leadership.
Again, this is where a mentor, board of directors or peer group can help. Improving your mindset can’t be done alone in a vacuum. And although the journey is long -- some people take a lifetime to self-improve to their potential -- the benefits of taking on that journey include better business decisions, more happiness and fulfillment, and ultimately more wealth financially and in every other part of life.
There are two types of networks: an execution network and an opportunity network. An execution network is when your network is primarily in one cluster -- say, one industry, one college, or one geographic territory, where most of the people in your network know each other as well as knowing you.
By contrast, an opportunity network is more diverse. You have an opportunity network if you know many people from different industries and places who don’t necessarily know each other.
In business, as in life, your network matters -- tremendously. Building and maintaining a network can mean the difference between collecting a $50,000 per year paycheck or scaling and selling your company for $50,000,000.
Let's return to our example of a bakery. A talented baker could set up shop in the middle of town, get to know all the local people and businesses, and create a nice business servicing the local clientele. In that case, the baker would have an execution network, which supplies the bakery with a steady stream of paying customers.
Contrast that with a baker who teaches her employees how to bake, hires a great business operator, and then goes out into the world to build an opportunity network. She meets other entrepreneurs who teach her how to better market her goods. She meets a franchise strategist who tells her about the power of franchising. She meets a venture capitalist who teaches her how food companies get funding. Then, she uses all of those connections to create a nationwide chain of bakeries that sells for millions of dollars in just under ten years.
Those are two very different entrepreneurial paths. And if you’re reading this, I’m willing to bet you might be in the latter camp. If so, your network is your net worth, and your next step is to build relationships with people who are superconnectors. Superconnectors are people who know lots of other people in the business world and can make powerful introductions for you that will change your business and your life.
Building a proper network is one hidden strategy that successful entrepreneurs use over and over again to create wealth. It’s not often talked about; but if you learn this skill, it can mean all the difference to your biggest life goals.
Finally, the last of the six absolutely essential elements of building a million dollar company that most owners get wrong is in the finance department.
In the beginning, entrepreneurs grab at cash like it’s air -- and with good reason. Without cash, your business will starve and go out of business. As the saying goes: revenue is vanity, profit is sanity and cash is king.
Managing your cash flow is absolutely critical if you want to survive long enough to get to $1 Million and beyond. But this is an area where most entrepreneurs don’t have a clue about how to manage a cash flow. They spend frivolously, invest in the wrong equipment or technology, spend too much on people and don’t have enough liquidity or access to debt instruments like lines of credit.
To make matters worse, many entrepreneurs intermingle their personal expenses with the business expenses. But, worst of all, most business owners don’t take an appropriate pay for all of their hard work.
Then, beyond cash flow, there are almost always issues with the accounting. While it’s easier to be on a cash accounting system, you have to ask yourself how that system might be preventing you from making better business decisions.
There are several questions that need to be addressed when it comes to scaling a business to $1 Million or more. For instance: What do your numbers look like on an accrual basis, and how do your financial ratios look? How are you preparing your books to build better banking relationships and secure debt instruments that you can use to fuel your growth? How are you reinvesting your profits?
Sadly, most companies don’t even think about these critical elements. Allow me to remind you: while it’s great that you’re passionate about your business, the role of your business is to make you MONEY!
If you’re not properly operating your financial levers to build your net worth, you might as well be throwing money out the window. And if you think you’re too small to think this way, think again: big companies get big because they focus on their financials and watch their net asset value grow, not the other way around. Don’t confuse cause and effect!
Again, finance is an area where you should seek guidance from a competent entrepreneur who has experience structuring the financials of a growing company. Remember, your tax and business accounting are two separate systems, so don’t fall into the trap of assuming that because you have an awesome tax accountant that you are positioned to make sound investment decisions for your business and its cash flow.
Smart Millennial entrepreneurs avoid mistakes by getting the help they need.
Most entrepreneurs have to figure all of this out on their own, over many years and lots of mistakes. I was exactly the same way, so I personally know the value of getting some guidance from those who have done it before, so you can find shortcuts and avoid those painful missteps!
If you want to see how this 6-step formula works for your particular six-figure company, I hold several hours aside each month to show qualified Millennial entrepreneurs how to customize these six steps to your unique business - for free.
If you want to book one of these limited sessions, click here to learn more and submit an application.
During your session:
- You will develop a crystal clear vision of your most important big goals for the year,
- You will uncover the hidden obstacles that are preventing you from making the money you want, and
- You will have specific steps to grow your company to $1 Million or more over the next year.