The 5 Stages Startups Must Go Through to Make That First $1 Million What stage of business is your startup in?

By Jeremy Ellens

Opinions expressed by Entrepreneur contributors are their own.

We all want our startup businesses to hit that coveted $1 million per year in revenue. The unfortunate truth is that only 4 percent of us actually make that goal.

Related: 11 Mistakes Standing Between You and Your First Million

This past year my company scaled LeadQuizzes, our lead generation software, past the $1 million mark in less than six months. Having hit that sales mark, I now know how important it is to maintain an awareness of where you are in your business.

That means really understanding: 1) the stage of business you're in; 2) the fears and limiting beliefsholding you back; and 3) the keys to growing into that next sales bracket. Having this awareness creates more confidence and allows you to prioritize and take action.

Here are the five stages I believe that you and your startup must go through to reach that understanding and hit that $1 million in sales.

Stage 1. Searching for product market fit

Your goal at this stage should be finding a product market fit. You're likely excited at this point, but scared. Now that you've jumped in to starting your business, your plan for how to grow isn't as clear as you'd thought. What's more, you're not making much money yet, which is scary.

You're also starting to get distracted by lots of different opportunities for making money. Don't let that happen; focus on your plan. And when talking about your business don't feel you have to "fake it" and act more successful than you actually are, even though you're worried whether things will work out.

Daniel Tyre of HubSpot For Startups told me that the key to success is to start by proving your value and attracting customers. He recommended offering discounts or doing work for free to create case studies and a track record of results. Focus on the lowest hanging fruit, he said. And ask friends and family for referrals.

Related: 9 Factors That Helped Me Make My First $1 Million in Profits

Stage 2. Moving from a part-time to full-time business

You made it out of stage one. You've built a small reputation for getting results. Most importantly, you've got customers.

At this stage, you're most likely becoming overwhelmed from having to sell and fulfill those orders. You're finding it difficult to keep up.

You know you need to bring on some help, but you're barely paying yourself as it is. You're not sure how long that steady stream of referrals and sales will continue. You also worry you'll have a hard time letting someone else take over because you haven't yet established repeatable systems.

Loren Howard of LLH Development and Real Estate told me that the key to graduating from this stage is to push through. Things will feel uncomfortable, he said, but if you can spend 70 percent of your time on sales-generating activities, you will feel more confident and able to bring on a virtual assistant, then, potentially, a full-time employee.

As your expenses and reputation increase, you should be able to increase the pricing discounts you offered your first customers, Howard said.

Stage 3. Establishing a scalable business model

If you've made it to stage three, your primary goal now is to establish a scalable and predictable business model.

At this stage, you're most likely still feeling overwhelmed. You may have employees, but you're personally wearing many hats. You need to hire more support, but you're worried about generating enough consistent work, as you are still mostly reliant on referrals.

This makes it difficult to see the path ahead where you can scale. At the same time, you're not extremely happy with your team's performance because you haven't created effective training procedures or clearly defined employees' job roles and how they are to be held accountable.

To make it out of this stage, Emily LaRusch of Back Office Betties told me, you should make a major effort to shift from a referral basis to a predictable and scalable source of leads and sales. To do this, she said, use a tool like advertising. This is likely going to be one of the most difficult transitions in your business to date, she told me.

Continue to spend 70 percent of your time on sales-generating activities. You will need to set up basic tracking and systems to manage your sales and team around your new scalable business model.

Stage 4. Building systems and infrastructure for growth

If you've made it to stage four, then you need to start establishing better systems and infrastructure for growth. At this stage, most decisions are emotional ones because your tracking and metrics haven't yet been established.

Now that a scalable business model is in place, you can focus on moving into stage five. Chris Ronzio of Organize Chaos told me you should focus at this point on creating job descriptions, standard operating procedures and key performance indicators for each role.

Once those things are in place, he said, you can begin to hire and increase your capacity. At this stage, you should improve your lead and sales tracking. You should also optimize your sales model and increase the amount of revenue you make per customer. As you improve, you will be able to scale your advertisements and hire sales reps.

Stage 5. Scaling your team and proven systems

Once you make it to stage five, it's time to scale your team and proven systems. In stage five, your growth is probably limited by your technology and your people. Cash flow is still a stressor as you make more expensive hires and invest in technology and infrastructure to grow. Once you gain clarity around what you need to do, and understand your finances, the stress will be reduced.

Scott Oldford of Infinitus recommended that you will most likely shift more focus toward hiring and training new team members at this point. That means more of your time will be spent on management. You will need to improve your technology to handle more advanced reporting and tracking. You'll get the opportunity to finally accelerate and scale what is working.

Related: Making Your First Million Is Easy -- If You Follow These 5 Steps

If you don't have an awareness of where you are in your business, and follow this framework to break into what the next stage is for you, then the chances will be greater that you'll give up, not realizing how close you actually were to achieving success.

Wavy Line
Jeremy Ellens

Co-founder of Yazamo

Jeremy Ellens is the co-founder of Yazamo, a Phoenix-based digital-marketing agency specializing in the health and wellness field. Yazamo helps their clients grow their email lists by over 100,000 people in one year and increase their online sales. Ellens was previously named one of the top five college entrepreneurs in the nation by Entrepreneur Magazine, after which he quit his job to pursue entrepreneurship full-time and start Yazamo.


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