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Despite what you may have read in Get Rich Quick! Volume 33, there's no foolproof plan for making $1 million in your first year. Most start-ups never make that kind of annual revenue at all. "People are running away from the big splashes," says Robert Lattimore, president of CCSBI (Contra Costa Software Business Incubator), a Concord, California-based incubator for technology companies. "A year ago, the discussion was macro, not micro, but now people are interested in consistent growth, results and profit."
But that focus on the long term can yield results in the short term. Start-ups that stuck to business basics during the dotcom hysteria of the past few years are now reaping the benefits. Consider these fledgling firms:
- MyPrimeTime Inc. focused on profitability, not valuation, and grossed more than $1 million in its first year.
- Shunra Software Ltd. made more than $1 million despite the fact that it received no outside funding and was run out of a garage.
- Pacific Coast Reprographics made more than $1 million while competing against the largest reprographics conglomerate in the nation.
While these companies' owners all took different paths to their first million, they share one common thread: an intense focus on sustainable growth and profitability.
Get Your Motor Running
While most start-ups slowly work their way toward the $1 million plateau, others are built for speed. MyPrimeTime, a digital media company that produces success-oriented TV programming and a similarly oriented Web site, was founded by movers and shakers in the broadcast media world who knew how to get to $1 million-fast.
"Throughout the company, there was a sense of urgency," says Craig Forman, 39, co-founder and CEO of the San Francisco-based start-up. "We had deadlines before we started, and we hired for speed. That's the only way you can get to $1 million in the first year."
"Throughout the company, there was a sense of urgency. We had deadlines before we started, and we hired for speed. That's the only way you can get to $1 million in the first year."
MyPrimeTime's founders were focused on the bottom line. "We come from the old world [i.e., companies including AOL and CNN], so we're geared toward profitability," says Helen Whelan, 46, co-founder and president. "We always look at things from a cost-benefit analysis."
Giving employees the freedom to communicate and make their own decisions was a big part of MyPrimeTime's first-year ascent. "We couldn't have moved so quickly if everyone internally wasn't empowered to run their own group," says Forman. "If you create an environment of mutual respect and communication, you get more out of the team."
Forman and Whelan's extensive experience in broadcast media kept MyPrimeTime growing while many Internet start-ups were hitting the skids. In January, by making the most of their industry connections, they launched Great Entrepreneurs, a weekly half-hour PBS show that profiles famous entrepreneurs of the past century. "Television is considered very sexy, and people want to be around it," says Whelan. "Plus, with our background in broadcasting, we could immediately go in as a partner with PBS and create a TV show."
Their partnership with PBS also gave MyPrimeTime a national platform from which to reach its target audience: baby boomers. "PBS is perfect for our demographic," says Whelan. "It's classy, and it's for people who want to educate themselves and get better at what they do. The show dovetails perfectly with the message on our Web site."
Forman and Whelan struggled with personnel decisions during their first year. "There was a time when we thought we weren't hiring big enough or fast enough, but then we had to lay off 30 people," says Whelan. "It's easy to get ahead of yourself and spend a lot of money when you're growing."
"The nuance here is, you have to be fast, but you've got to stick to your plan," says Forman. "Our mantra is, 'We don't do frantic well.' Speed is important, but you must have your eye on the long term, not the short term. Especially now, growth must be evolutionary, not revolutionary."
"Everyone in our company is focused on profit generation," says Benny Daon, 31, founder of Shunra Software Ltd., a $1 million software development firm based in Paramus, New Jersey. "We are very conscious of the bottom line."
Daon used his own savings to pay for start-up costs. He moved operations from Israel to New Jersey in 1999 and spent much of his first year there running the company out of a garage. By the end of 2000, the company's first full year of business, Shunra had made well over $1 million.
"If you're going to be able to scale your business to a $1 million start-up, you really have to be global."
Shunra wasn't just a job; it was Daon's life. "If I took home a salary, it wasn't a CEO's salary," he says. "I was working hard-16-hour days-and it got really crazy. At one stage, my wife said, 'That's enough,' and we made an arrangement where I would work from sunrise until 11 p.m., and I'd take a half-day off."
Shunra's first sale was to Royal Philips Electronics, which gave the company an immediate international presence. "If you're going to be able to scale your business to a $1 million start-up, you really have to be global," says CCSBI's Lattimore. "You have to be able to access and execute in global markets."
As a high-tech start-up, Shunra also had to deal with some unexpected legal issues. "The thing that surprised me most is how important it is to get good legal advice," Daon says. "In high-tech, everything you have is intellectual property. Agreements you have in writing with your customers and employees are as important as the product you develop. You have to understand the legal side of your business, because you can't always trust lawyers to do it for you."
average number of hours worked daily by owners of Entrepreneur's Hot 100 fastest-growing companies
SOURCE: Dun & Bradstreet and Entrepreneur
Because Daon didn't seek venture capital, he was able to concentrate on profitability from Day One. "When you bring VC [firms] on board, their concern is valuation for the next round of financing," he says. "They're not always interested in revenue. VCs can really make you lose touch with reality."
Shunra kept growing without outside money because Daon continually reinvested his profits in the company. "Being a bootstrapped company, it's important to invest our revenue in places we can generate more money," he says. "Sales was our first priority. Once we got a little bigger, we moved to things like marketing."
Daon's focus has shifted now that Shunra is an international company (its 30 employees are split between Israel and New Jersey). "I still work a lot of hours," he says. "But I found it easy to let go of the business and transition into looking at things from a CEO's point of view. I look at expenses and work on recruiting good people."
Now that Shunra has made its first $1 million, Daon can relax and enjoy his success, right? "It never ends," he says. "You never quite know you're there. There's always so much to do, even after you make $1 million. That's our focus now: to sustain our success and continue growing."
Did you ever think you could run the company you worked for better than your boss? If you're a true entrepreneur, you probably think it every day. In 1998, Zack DaFaallah, 41, and Alex Torres, 30, made that thought a reality when they quit their jobs at a large Southern California reprographics firm and started Pacific Coast Reprographics (PCR). By the end of its first year, the Irvine, California-based start-up had made $1.2 million.
"We had to watch everything we spent in order to make a profit. I ate a lot of peanut butter and jelly sandwiches that first year."
"We wanted to strive for something better," says Torres. "There was nowhere else for us to go at our old company."
DaFaallah and Torres, who specialize in digital reprographics, felt their old company wasn't keeping up technologically. DaFaallah even wanted to train salespeople in digital output, but his employers weren't interested.
"A part of our customer-service model is to educate employees and clients," says DaFaallah. "By showing them how to send us better images faster, we can deliver earlier with higher quality."
When DaFaallah and Torres first opened PCR, a number of previous customers sought them out. Unfortunately, that led the duo's former employers to accuse them of tampering with clients.
"They didn't really have a case, but our old company thought that by dragging us down with legal costs, they could shut us down before we even got started," says DaFaallah. "Instead of putting our resources into the business, we had to pay our lawyer a very precious $10,000 to $15,000."
Once they overcame their legal issues, DaFaallah and Torres were finally able to put all their energy and money into PCR. Even though they were able to hire a salesperson and pay her salary, they themselves didn't take salaries for the first six months. "We had to watch everything we spent in order to make a profit," remembers Torres. "I ate a lot of peanut butter and jelly sandwiches that first year."
Fortunately, DaFaallah and Torres had immaculate credit, which enabled them to fund the start-up not only with their savings, but with their personal credit cards as well. "Banks don't lend you money unless you're in business for two to three years," says Torres. "We had to focus on keeping customers so we could make a profit and continue growing."
"When we started, we would tell people we were open from 7 a.m. until the work is done," says DaFaallah. "That was our motto. [Customers knew] that the work would get done, and they came back because we did a good job."
Eventually, DaFaallah and Torres came toe-to-toe with their former employer again, this time outside the courtroom, when two potential clients asked each company to provide samples of their work. "Our [former employers] knew they had to do their best to compete with us," says DaFaallah. "But their best work wasn't even qualified to stand next to ours. Getting those clients was one of the defining moments of our first year."
|There's no magic formula for making $1 million your
first year in business. But based on the stories of entrepreneurs
who've done it, these are some rules to live by:|
As PCR took on more clients, DaFaallah and Torres were forced to hire more employees, which proved to be one of the biggest challenges of their first year. "PCR was our baby," says DaFaallah. "I used to look at every job, take work orders home and spend three hours making sure we were doing the work correctly. It was difficult to let go. After a while, you have to trust your employees are doing things the right way."
DaFaallah and Torres are currently setting up a network of reprographics firms in an attempt to fend off an impending monopoly by their former employer. The Network of Affiliated Reprographic Companies (NOARC) already has nearly 30 members nationwide, and PCR has set up a training facility in Irvine that equips smaller reprographics firms with the technology and skills to stay competitive on their own.
"We don't want anything to do with their finances; we just want to give them the tools to remain independent," says DaFaallah. "We're solidifying our place in the market by helping smaller companies stay put. In the end, it's about fair competition and sound business practices."
- Contra Costa
Software Business Incubator
- MyPrimeTime Inc.