There’s a common rule among slightly less risk tolerant venture investors when they look at investing in startup companies, especially non-tech:
“Wait until the company is generating at least $10 million per year in revenue. Then invest.”
Or, about a million a month. That’s a great milestone for any early business, as it feels like some sort of validation and “proof” that you’ll be around for a long time. It’s not; there’s no guarantee that you’ll survive at any revenue rate, and $10 million/year
It implies that you have infrastructure, offices, you’ve figured out international, made a few useful mistakes.
For a small group, the formula is totally different; there’s a much higher risk appetite, where revenue is secondary to the chance for a giant win. Facebook, Twitter, Google all had little to no revenue early in their life and major losses. Users, eyeballs, traffic, clicks — that’s what they use as arguments to raise billions in funding and dominate their markets. They also have enormous amounts of early seed capital. Facebook raised hundreds of millions before having revenue.
But those high profile stories are the outliers; 99% of startups are not like Facebook. need to justify their existence and investment worthiness with growing revenues and eventually profits. Thus the $10 million floor.
This is an extremely important rule to remember when you’re trying to build a company. Many startups fail because they build the company at first based on a product focus. “We have awesome products.” “Nobody can do what we do.” You need early on to shift to a professional sales focus, and most startups wait too long.
The Suits
Several times I’ve been part of that “professional sales” group that joins a startup trying to make the transition. It was usually not a smooth process. Although they knew they needed us, they didn’t want to believe it. They called us the “suits”, or “marketing slime”. Often their investors forced them to hire the “suits”.
But we knew how to scale revenue, close bigger deals, do “enterprise sales”. It was fun to watch the cultures try to mesh; sometimes it worked, sometimes it didn’t. Making it work was key to getting the company to the next level, to get past 10 million and keep going.
Sometimes some of the founders and early employees weren’t so sure they wanted to grow. They liked the control they and knowing everyone by name at the company. Tough decision. Did they really want to lose that feeling of a small team, that culture? Would they be “selling out?” I’ve faced this hesitation many times, and I empathise with this side of the argument.
On the other side, the suits, the investors and often the founders want the growth, want the challenge, are ready for change. Grow, grow, grow is not necessarily a bad thing.
So pay attention to this milestone when you plan or start a company. Can you see a million a month? Then go for it! Be an entrepreneur.