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Small Business Heroes

The 3 Reasons Why Most Startups Never Reach 7 Figures Per Year

A/B testing, company agility and a focus on the little wins with compounding results are the secrets to realizing your dream.
The 3 Reasons Why Most Startups Never Reach 7 Figures Per Year
Image credit: Maskot | Getty Images
Guest Writer
Co-founders, Juice
6 min read
Opinions expressed by Entrepreneur contributors are their own.

Seven figures a year: That's like winning the Olympics, running a triple marathon or finishing first in a race you weren’t sure you’d even complete back when you launched from the starting block.

Related: Most CEOs Miss These 3 Things When Scaling Their Businesses

For your business, seven figures is a massive milestone, one you dream about achieving, but also fear (let’s be honest) is out of reach for you and your business.

After all, only about half of small businesses make it to the five-year mark and only a third make it to 10 years, according to U.S. Small Business Administration data. Evidently, keeping your business afloat for half a decade is a feat all its own -- and reaching seven figures? That’s even more challenging.

Still, you can do it. Other entrepreneurs have; you can, too. And that’s all the proof you need. But sometimes the best way to learn how to do something is to learn how not to do it -- how and why those who have tried before haven’t succeeded. With that in mind, here are three typical reasons that most startups never reach seven figures, and how you might avoid those same mistakes.

1. They run too few experiments.

Author Eric Ries said it best when he penned these words in The Lean Startup: “The only way to win is to learn faster than anyone else.” The more that you learn about your customers, your market, your competitors, your product -- its strengths and weaknesses, your marketing campaigns' successes and shortcomings, even your internal processes -- the better equipped you are to create business-building iterations.

Not all product iterations or marketing changes are equal, after all. Some shifts will contribute to a bigger, healthier business (taking you closer to seven figures per year) by increasing your website conversion rate or lifetime customer value. Other shifts will fall flat, leaving your metrics static, or even worse off. The only way to know which changes you should keep is to consistently employ A/B tests, split tests and surveys, and then to learn from the changes you've made. Next move? Keep what works and throw out what doesn’t.

That takes innovation: The CTO of Amazon, Werner Vogals,believes so strongly that his company's success depends on an innovative spirit that he said, according to BBVA, “If we stop innovating, we’ll be dead in 10 years." If those words don't illustrate the importance of testing, innovating and learning in your own business, I don’t know what does.

Related: A/B Testing Is Maybe the Easiest Way to Boost Conversions on Shopify

Unfortunately, most entrepreneurs take that advice lightly -- they launch their business and cross their fingers, and that’s it. Businesses that reach seven figures, however, keep learning, iterating and running experiments, which propels them into a more informed, and therefore profitable, future.

2. They don’t focus on little wins with compounding results.

Big wins are great. What business owners wouldn’t enjoy a spontaneous, massive boost in conversion rate, website traffic, product performance or bottom-line profitability? Heck, with seven figures as your objective, it’d be easy to depend on a few large month-to-month boosts in revenue.

But the truth is, most businesses don’t launch today and hit seven figures tomorrow. That takes time. And more often than not, it takes a lot of time. The Atlas reported that Jeff Bezos didn’t turn a profit for Amazon until 2003, nine years after launching the company.

Frederick W. Smith, the founder of FedEx, only made his first profits for the company in 1975, four years after its launch. And Tesla didn’t experience its first profitable quarter until over a decade after it launched, Wired reported.

In other words, if you're finding that it's taking time for your business to find its footing, you’re in good company.

The best thing you can do is focus on little wins and the positive payoffs from small product iterations and marketing changes. You could, for example, change the sales copy on your website to increase your conversion rate by 5 percent. And maybe you could also build a more persuasive sales funnel, which could further ncrease your conversion rate by 6 percent.

Imagine, too, that you fix your Facebook ad-targeting to find your ideal market, which could raise your final conversion rate by 3 percent. In the end, you'll have increased your overall conversion rate by 14 percent, with just a few small, try-and-test sort of changes. When running a six-figure business, that could amount to hundreds of thousands of dollars in additional revenue every year. So, don’t undervalue the little wins with the compounding results -- those are just the changes that will get your business to seven figures… over time, of course.

3. They don’t remain agile and flexible.

At the core of most startups which succeed in reaching sevenfigures per year is a remarkable ability to learn, adapt and remain flexible ... even as the company grows. Adjusting to a changing market is relatively simple when you’re a solopreneur with a few freelancers in tow, but when you’re managing 30 or more employees, three other C-level officers and brand new internal processes, shifting with market changes becomes more laborious.

In fact, it’s often easier to stubbornly believe that the market will adjust to your business given time -- that’s a whole lot easier than making big but necessary changes within your growing company.

As The Motley Fool reported, Jim Keyes, the past CEO of Blockbuster, said in 2008, “Neither RedBox nor Netflix is even on the radar screen in terms of competition.” One has to wonder… did he really believe that? Or was he just too unsure of how Blockbuster could possibly change from its then-business model into something else that he stubbornly believed in?

Related: Can Learning Agility Improve over Time?

Whatever the case, the truth is the same: Businesses that adjust quickly and remain flexible survive longer than their stony counterparts. So, if you want to reach seven figures per year, you need to keep internal processes as simple as possible. You need to continue to pay attention to your market, even when things are lucrative for your business. And you definitely need to be willing to make changes when the times demand it.

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