Reflecting on My Failure to Build a Billion-Dollar Company

I was reading an article recently about managing small business growth. Not tech or startup related, just a good old fashioned blog post from an accountant who said hey you've started a business and it's growing, here are some things to consider. (I've lost the link unfortunately.)

One point this guy made was that a lot of businesses develop additional overheads and need a lot of cash to grow after they reach around $1M in annual sales. Going from $1M->$10M is a big step which is hard to self-fund, there is some risk involved, and the owner's mindset needs to change.

I couldn't help but think, hey a consistent annual $1M in sales is quite an achievement by itself. If you own most or all of the equity in that company, financially you're doing far better than most people (OK, maybe less true if you run in certain Bay Area circles). This is a perspective you won't hear from VCs, but if you hit that milestone, who says you have to go higher?

Maybe it's OK for a founder to just stop at some point, especially if they don't enjoy what they're doing or they've been under-investing in other areas of their life.

People addicted to Startup Porn GREATLY underestimate the value of a business that generates a million dollars a year.

> People addicted to Startup Porn GREATLY underestimate the value of a business that generates a million dollars a year.

Annual sales of $1M does not mean "generating a million dollars a year". In some industries, those $1M in sales might be as low as $30k to $50k in earnings (though it would probably be more for a software company).

Semantics aside, I'll say it again: people addicted to Startup Porn GREATLY underestimate the value of a business that generates a million dollars a year. Even if the earnings are 5% or 3% or even 1% ....getting someone to give you that much money for something you are selling is a lot harder than most people realize. Whether it's a million widgets at one dollar each or one widget at a million dollars, that's a LOT of money to be transacting.

The business world is vast and diverse so generalizations are tricky, but as an example, the combined profit and owner compensation on an owner-operated service business with a $1M annual turnover can be 25-30%. The VC model would put this all back into growth (plus more) and try to go for broke. The mom and pop model might try to live frugally and sock away as much of that annual $250K as possible for 10 hard working years, then sell the business for a modest multiple of revenue. With a relatively low risk business strategy, this puts mom and pop in the top 5% of American households for the duration of running the business and probably higher in retirement. (Yes, software and other giants have eaten a lot of these businesses in the US, but they're still around.)

It's not just "semantics": We're talking about an order of magnitude difference, and revenue is not the same as earnings.

> getting someone to give you that much money for something you are selling is a lot harder than most people realize

Absolutely, I agree! But the value of a business – which you were talking about – isn't determined by its revenue alone. In fact, earnings and earnings growth determine the value of a business a lot more than revenue.

Even for a "mom and pop" business – especially for a mom and pop business – earnings are much more important than total revenue.

Apologies for the snark but my original comment was intended to say "profit of 1 million a year"; my shorthand of "generate" inadvertently created some shade of gray and I might have been well served to simply clarify.

Then I thought about it and said to thyself, "actually, a million is a lot either way." I've actually founded two companies that grossed over a million in a year (one at about 40% gross, 5% net and one closer to 75/65) and both times have required a whole lot of work.

So my fault for being vague, not intended.