To beat the odds in small business, the focus for the first year must absolutely be on revenue creation. Without revenue, you have no business. But how much revenue should you be aiming for?
Putting together your budget is the ideal time to define your longer-term vision for the business and ask yourself how big do you want to grow?
There is no right or wrong answer to that question – it comes down to the individual, their ambitions and risk tolerance.
Success has many levels and doesn’t have to be defined by a seven-figure income. At the same time, one of the greatest challenges I encounter working with small business owners is the lack of confidence to break through the elusive million-dollar barrier and truly scale.
For others, the pace of growth is an important consideration. Rapid success in early stages has its own challenges. I often warn against “growing broke” – growth requires good cashflow to be sustainable. Businesses experiencing rapid growth often run out of cash. Growing too fast means you have to go back to the early stage of business growth and get the business back on track.
There are the six stages of growth for a business, which I explore below. The end goal is not necessarily getting to the final stage, “Infinity and Beyond”, which involves topping $4+ million in annual revenue. The middle ground, “Going Steady” (just under the million-dollar benchmark) is sometimes the happy place for many business owners.
You don’t have to go through every stage – and remember, at any point in time – a business can fail without the right safeguards.
Stage One – “Bit on the Side”: Many entrepreneurs test the waters by doing what they love on the side whilst still employed. Business revenue tends to be small, with annual revenue ranging from $0-$20K.
Stress levels are low at this stage but the pressure is on founders to decide if they can get to proof of concept stage and make it a viable business. While they are fuelled by great ideas and a lot of passion, it’s a balancing act of finding the time to grow the business and wanting to stay in the secure state of having consistent employment and – more importantly – cashflow security.
Stage Two – “Riding Solo”: This stage is about taking the leap of faith – you’ve quit your job and you’re ready to kick it up a notch. In the first year of business, the focus needs to be on revenue creation.
It’s probably the most nerve-wracking time for female founders in particular. I advise them to push away the doubts and not delay the big decision until they feel 150 per cent ready for it.
On the other hand, there is little place for gut feelings when it comes to business strategy – founders need to make informed, strategic decisions based on a clear understanding of their true financial position.
Stage Three – “Small but Serious”: While revenue hasn’t skyrocketed and is somewhere between $150-$299K, the business has passed the litmus test and gone from proof of concept to proof of product, complete with a customer base.
A lot of “Mum and Dad” businesses never grow beyond this stage and never get to the point of expanding the business to a saleable asset. Instead, their exit strategy tends to be close the doors and enjoy retirement.
For business owners keen to scale, from stage three onwards, it’s really important to focus on management skills and building the right team to get to the next stage of growth. I see a lot of SME operators trying to manage the whole process alone, but by training their teams to achieve their full potential, they can lessen the workload and shift their focus to crossing the line to the next stage.
Stage Four – “Going Steady”: The balance has shifted and you’re committed to growing and are ready to invest everything. It’s a far more complex stage and has a different focus than starting up. Turnover is $300-$999K, edging up towards the million-dollar mark.
Leveraging shifts to central stage at this juncture when you have resources, structure and business value but turnover is still highly reliant on you.
Stress levels can be high, as women contemplate what getting past the million-dollar marks means for their personal as well as professional life. A good way to alleviate unnecessary stress is to have iron-clad systems and HR processes in place.
Stage Five – “The Million-Dollar Mark”: Many SMEs get stuck at the million-dollar threshold. They face the dilemma of reaching for scale but not having enough resources as – up until that point – they have been the driving force of the business and it’s dependent on them.
While it is a challenging stage to push through, it’s not impossible and comes back to the critical issue of financial literacy. You can achieve a lift in profits when you understand and confidently speak about your numbers.
Pricing strategy is also vital for scaling up – you must accurately value your time, especially in service-based businesses, and price it correctly in your business model. That means understanding the total cost of delivering your product or service and ensuring there is enough mark-up on your cost to achieve a net profit after all operating expenses.
Stage Six – “Infinity and Beyond”: This stage is the hallmark of a mature business which is really scaling up, potentially with their sights on international expansions. Annual revenue is $4-$10 million plus. After shattering the glass ceiling, stress levels reduce at this stage because the business is no longer reliant on the founder.
However, the initial buzz of launching your business has gone and the risk is losing the entrepreneurial spirit. In particular, it can be a challenge for entrepreneurs who don’t have any day-to-day involvement in the business anymore.
But having laid the foundation with recruitment, training and good management, you can shift the focus to retaining the entrepreneurial spirit in the business and keeping the vision and enthusiasm in the team.
Know where you’re heading from day one
Having worked with many business owners over the years and shared in their successes, I believe there is no limit to where founders can take their businesses – if they have the right vision and systems in place.
From day one, it’s really important to know where you are heading, what your focus is now and where you want to sit in the future. Enthusiasm is at the top of the list as self-employment can be a tough road, but it’s closely following by planning. It’s important to have an initial budget, and to understand the mechanics of your financial statements – such as the relationship between profit and loss (P&L) and balance sheet and cashflow. This will be the focus of my next article.
This is the fourth in a 12-part series on the secrets to building and scaling a successful SME by Tanya Titman, serial entrepreneur and Founder of SME focused accountancy practice Consolid8 and female SME growth program Acceler8. In her Business Growth Booklet, she outlines the six growth stages in a founder’s business journey.
[Editor’s note: This is the fourth in a 12-part series, by serial entrepreneur Tanya Titman, on the secrets to building and scaling a successful SME]
About the author
Tanya Titman is the founder of SME focused accountancy practice Consolid8 and Female SME growth program Acceler8. She was interviewed by Dynamic Business for the feature article Financial literacy, not gut feelings, key to female founders scaling past the $1m mark. Tanya regularly contributes to the “Let’s Talk…” series of thought leader pieces. See also: Lessons I learned in the start-up phase that will help first-time founders take the plunge, Should you leave your job to start a business? Seven steps to consider before making the leap and So, you’ve left your job to start a business… now what? What to know about the first year