Your First $1 Million: How to Prepare For a Business Milestone
You’re on the cusp of a business milestone: your first year to post $1 million in revenue. Time to celebrate. But better keep the party short as you now have to gear up for a new and probably more challenging phase in your career as an entrepreneur.
Recording your first million means your business is growing and succeeding. But as you rack up more sales and more marketplace wins, you’re bound to encounter more and sometimes bigger hurdles. Chances are you’ll need more people, more skills, more money and, most important of all, more patience and wisdom.
That was certainly my experience when my company, BlueVine, hit the million-dollar mark a couple of years ago. And that’s what many other small businesses on the verge of becoming significantly bigger go through. For most fast-growing small businesses, reaching that milestone means important changes. Here are four of them:
Be ready to hire more people.
You probably took on multiple roles as you were starting your business. You were head of the company, as well as the accountant, the press release writer, the social media manager and the cleaning guy.
You brought on more people as the business grew. By the time you close in on the million-dollar mark, your human resources needs are likely going to be bigger and more complex. You’re no longer just the head of the company with an immediate staff.
You need people to focus on more specialized functions, from finance to sales to marketing. Eventually, if you continue to grow, you need a management team in place to make strategic decisions.
Related: Strategically Discussing Strategy
Hiring itself becomes a formal process. When you’re a small company, you hire people based on who you hear is looking for a job. So you rely on your network or the networks of friends. When you’re already around 10 people, your search for talent becomes more sophisticated, involving professional recruiters and advertising.
Let me stress an important point here: as you become a million-dollar company, hiring and growing your organization will be one of your primary concerns. In fact, that’s where I think BlueVine stumbled a bit. We should have hired faster and more aggressively. When your company is growing fast, you simply can’t underestimate the importance of talent.
Be ready to make changes in the way you operate.
Like most entrepreneurs, you may have started your small business based on a basic legal structure, as a sole proprietorship or a partnership, perhaps. You may have had to change this as you got bigger, transforming the business into an LLC or a corporation. Now, you may have to make more changes in your legal structure as you get bigger to ensure that you have the necessary legal protections in such areas as liability, taxes, contracts and intellectual property.
This is an area where some business owners make serious mistakes. Many of these legal issues are complicated and it’s usually best to get proper legal representation and advice, especially when you’re already a million-dollar company. This is leads us to another question: should you just pay for the services of an outside attorney or is it time to set up your own legal team?
This question applies to other needs and functions, including marketing, customer support, and accounting and finance. You need to consider these needs very carefully. At BlueVine, I actually wish we had invested earlier in some of our processes. As your business grows, you need to invest to keep up with that growth. Otherwise, you end up spending more time and money to realign your support functions in the future.
Be ready to rethink the way you finance your business.
Chances are you started your business with the help of your personal savings or your credit card or money from friends and family. You later turned to other types of financing, including bank loans and business lines of credit.
For a consumer, debt is something you try to avoid as much as possible. For a business owner, debt is a tool. Managed properly, debt can help your business stay afloat and even grow. And when you’ve reached the million-dollar mark, your financing should evolve and potentially grow as you take on bigger challenges, whether it’s more competition or the need to expand.
You could bring in new investors, but that would dilute your ownership. Smart debt financing may be a better to way to grow and scale. Also, remember that working capital is not just about financing. It’s also about what terms you give your customers and how you manage your expenses.
For example, you could begin to decide to buy certain supplies or inventory in bulk to reduce expenses. When your business was small, the differences in costs may not be a big deal. But as you start getting bigger, how you structure these financial transactions starts to matter.
Here’s another example: if you are getting paid by your customers on net-30 day terms, instead of being paid on delivery, that makes a big difference when you start getting to large amounts. It’s not a big deal if the transactions involve just a few thousand dollars. But if you’re floating 30 days worth of sales worth $100,000, you’re essentially providing $100,000 of financing to your customer.
Be ready to transition from entrepreneur to CEO.
The million-dollar mark is also when you start making the transition from being an entrepreneur to a CEO. When you become a larger company, you start embracing the mindset of a CEO. Not only do you need to work with more people, you also have to learn to empower and inspire the people you are leading.
This is not always a natural thing to do for small business owners. Entrepreneurs typically want to do everything themselves, but this is not sustainable when you’re running a larger company. You become disruptive to your business for the simple reason that you don’t scale. You can’t make multiple copies of you.
You need to get comfortable with the fact you’re going to need to hire and trust more people. Ideally you’ll make the right hires and bring in good people. But in no way will even the best hires do things exactly as you would. They’ll have their own style and ways of doing things.
Many entrepreneurs fail in this. It’s hard for them to let go, to make the transition from doing everything or knowing everything to being able to trust other people to do what needs to be done for the business.
Related: Why The Best Leaders Delegate?
This attitude shift is also important when it comes to an important area: mistakes. You need to be able to accept that you and the people who work for you can and will make mistakes. Accepting and dealing with mistakes are part of the journey. That’s part of building a business.
This point was underscored to me by one BlueVine executive who felt that I was being too much of a micromanager and who asked me to step back a bit. “Give me accountability,” the executive said. “And if I screw this up, fire me. But give me accountability. Let me do what I need to do my way.”
That really resonated with me. In the beginning you feel that you’re accountable for everything so you feel that you need to control everything. I actually stepped back after that, and we were able to move forward.