Making $1 million — it sounds like a dream, but any business owner will tell you there’s much more to “making” money that just getting revenue in the door.
For one, revenue figures don’t represent what you as an entrepreneur get to take home at the end of the day. And while some business founders have previously told SmartCompany they’ve battled to get the first few dollars in their pockets, others say it’s when you start making serious cash that the real work begins.
Is it true, as one entrepreneur told SmartCompany last month, that the first million isn’t so hard? We asked six entrepreneurs to weigh in and their responses were divided.
Yes, the first $1 million is the hardest
Co-founder of $9 million supply chain consultancy business TM Insight, Milan Andjelkovic, says the first million dollars in sales were the hardest his company has ever had to fight for, given the Smart50 finalist was a two-man band when it started out in 2010.
“We couldn’t physically earn any more than $800,000 to $1 million as two people, and nor was it sustainable; the decision was made prior to us hitting this mark to hire a staff member,” he says.
Reaching that $1 million milestone, along with adding another team member, was critical for the consulting business because it opened the doors to more work, which in turn “gave us more credibility and leverage for more work, and so on,” Andjelkovic says.
Beau Bertoli, co-founder of 2016 Smart50 winner and SME lender Prospa, agrees the first million dollars is the toughest challenge, observing that if you have a good business model, the next stages of scaling should evolve naturally over time.
Prospa was founded in 2011 and when it came out on top in the 2016 Smart50 Awards, the company’s revenue sat at $22 million.
“The first $1 million is definitely the hardest when starting up — in the beginning you establish product-market fit by getting a handful of customers to actually pay you for your product or service,” Bertoli says.
Once you’ve established there’s a demand for your service, however, the work is far from done, Bertoli says.
He observes that the jump from $10 million to $50 million also presents challenges, because to scale to that level, a business needs to undergo a “monumental shift in business capability and leadership”.
“It also requires more capital investment and smarter problem solving because you’ve now built a winning formula that others will be keen to copy,” Bertoli says.
Andjelkovic observes that while the $1 million revenue milestone is significant, it also comes with responsibilities when you look to the next phase of growth.
Once TM Insight started taking on new staff, it gave the founders “immediate responsibility for someone else’s career” and meant they had to find ways of retaining loyal staff for the long term.
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Cash flow is king from the beginning
Jo Burston is the founder of Job Capital and Inspiring Rare Birds. She says reaching that first million in revenue was “definitely” the hardest process on her path to success.
“It is when I had the least experience, the fewest number of loyal customers, little reputation and was making mistake after mistake — and working the most ridiculous hours as I was completely and utterly obsessed with making things work,” she says.
Burston says at those early stages of growth, “everything felt painful, except the wins”, and having mentors was absolutely critical as she hurtled towards that first million dollars, and beyond. But the very process of learning how to build a business “on its own cash flow” is a skill in itself that she is still working on, even though Job Capital now turns over $37 million annually.
The serial entrepreneur points to a number of important skills that she had to learn as she grew beyond that initial million, including “governance, HR issues, IP protection, [and] attracting and retaining key A players”.
“Having a confidante I could 100% trust with my business and wellbeing was something I am forever grateful for,” she says.
No, the first million isn’t the toughest
Jen Geale, co-founder of Mountain Bikes Direct, tells SmartCompany that while reaching the $1 million sales mark was a great achievement for the team, it wasn’t the toughest challenge.
“We seemed to manage to do that by just having products people were looking for and appearing on Google!”, she says
Mountain Bikes Direct was founded in 2012 and in 2017, the Smart50 finalist was turning over $4.1 million a year. Geale says it’s as the company approaches the $5 million mark that pressure is really starting to build.
“We no longer presented like a tiny business, and we felt like customers had ‘big business’ expectations of us – in terms of delivery times, stock accuracy, product range, pricing,” she says.
The more you grow, the more challenging it is to determine where to place those resources and what to focus on for long-term growth, says Geale. This is something the Mountain Bikes Direct team has spent time dealing with over the past year, by making sure they focused on the foundations of the business.
Managing early growth easier with less people
Finding the right people to add to your business is easier in the early stages of your revenue growth, says founder of SEO firm SponsoredLinx, Ben Bradshaw.
The first million in sales might be a challenge to achieve, but things do become more difficult as the business grows. Founded in 2006, last year SponsoredLinx was turning over $15.3 million.
“When you scale beyond a million you need need to find and foster great managers and create robust systems, which is difficult,” Bradshaw says.
While building the business up to $1 million, Bradshaw says he observed that creating a company culture was easier because there were fewer people on board and “better visibility” in the business.
This makes it critical that businesses “find and foster” people that care as much about your goals as you do, he says.
As revenue increases, forget “DIY” approaches
Perigee Advisers founder Lisa Greig offer tax and business advice to growing SMEs on a daily basis. She says regardless of how easy her clients have found it to make their first millions in sales, many have often not planned beyond this.
“The big things that are holding them back are things like, are they in the right structure to [eventually] exit and to make the most of incentives for tax purposes?” she says.
Greig observes many small business and startup founders have not thought beyond their growth to consider how they will leave their business in the future, and whether they are equipped with the right business processes to succeed.
“There’s a lot more issues going from two to twelve million for example — key person risk, having the right HR, being able to delegate. You can probably be hands on up to the two million-dollar mark, but from there, you can’t have your finger on the pulse of everything,” she says.
No matter what stage of growth a company is aiming for, business owners should think about finding a good accountant and corporate lawyer early on to make sure they are ready for the many challenges that come with increased revenue, Greig says.
Many business owners, she says, “haven’t really thought about it”.