If you are a startup, I hope one day soon you get to $10,000,000 in gross revenue. If you do, I have some thoughts for you.
A caveat first — there are a great number of exceptions to what I am going to share with you, so do not fall prey to missing the difference of your situation or embracing every word I say, but there are reasons big and small as to why I hold these views.
So what do you mean, Big Red Car?
Here are some of the observations:
1. When you can smell $10,000,000 in gross revenue, you are beyond minimum viable product and should start to look like a real company. No more “we’re a startup” excuses.
2. At $10,000,000 you should be profitable or know the reasons why you are not and exactly what you need to do to become profitable and when.
I am not giving you a tongue lashing, I am saying that you should not be blaming “scale” or startup chaos for the absence of a rational profit.
From this point forward, every expenditure should be focused on growth and should be justified by a discrete ROI.
You can’t just add positions because you read in Fast Company that some company has such a position.
3. Your organization should be solid and as you grow, you should be able to identify the building blocks of growth in discrete units.
4. Future growth should be at the margin and the margins should be expanding. When you go from $10,000,000 in gross revenue to $20,000,000 you do not need to duplicate the C-suite, the management, and the core infrastructure.
Constantly ask yourself, what will it take on the org chart to double gross revenue? Where can I stretch existing talent? What outside talent do I need?
An example of outside talent may be the expansion of your organic bookkeeping, accounting, finance talent. I am a huge believer in outsourcing these things while also being one step ahead of yourself.
Go back and read this:
If you think it is a cell mitosis doubling of overhead, then you are doing something wrong. It should be much smaller and operating margins should be increasing.
5. As you become a more stable, sustainable business, you have to evaluate the role of equity grants — you can begin to pay market wages and thus the valuable equity is no longer an essential part of the comp mix.
Founders, in particular, need to make this hard assessment. It is your equity you are squandering after the $10MM point.
6. Take a look at every expense and see if there are areas that you slapped with the checkbook on the way up justifying it on scale or the tenuous nature of a startup that can now be streamlined, refined, reduced and thereby drop more margin to the bottom line.
I have seen companies improve margins by 10% with a little pencil whipping.
Brainstorm this with your co-founders. Grow out of your adolescence and into a more streamlined, taut organization.
7. In the past you may have relied upon cash on the balance sheet from the proceeds of financings, meaning venture capital.
Now, you should reorient your thinking to “cash flow from operations” as the funding mechanism to run the company.
Pay closer attention to cash balances, cash flow, cash management, and running the business within its cash generating capabilities.
This is a maturing process. It is a change of reference when you begin to focus on generating your own cash v raising another round of VC money.
8. Study your cap table and see if there might be some folks from the original “friends & family” round who would like to take a profit and retire from the fray.
Done correctly, this is a way to free up equity for founders.
9. Take a look at your critical talent positions and make sure you have sufficient talent bandwidth and that some folks have not gotten to their end of talent shadow.
This is hard to do, but you may need a different talent reservoir to get to the next big increment of growth. Wade into this and don’t ignore it.
I am going to leave you with this short list.
Bottom line it, Big Red Car
Fine, here’s the bottom line: When you get to $10,000,000 in gross revenue, you are the real deal and you need to take stock of exactly where you are, how you can position yourself for incrementally more profitable growth, and what it will take to double that revenue.
At $10,000,000 gross revenue, profit should not feel like speaking a foreign language.
But, hey, what the Hell do I really know anyway? I’m just a Big Red Car. Be well on this first work day of 2021, which is going to be YOUR year, amigo.